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Better Business March Issue #154Better Business
March Issue #154

In the March Issue of Better Business, Marc Hornby of Asparagus PR outlined the essential principles of Customer Relationship Marketing, giving their readership an insite into the dark arts of customer retention.

Keywords:
CRM - Customer Relationship Marketing
Customer Retention


CRM - Customer Relationship Marketing

Is Customer Relationship Marketing (CRM) another buzz term to add to your armoury of terms and ideas of how to engage with customers, or is there something in it that can apply to businesses that really will make a difference, delight customers and keep them coming back?

In order for CRM to work effectively and efficiently we need to recognise that the system in place is for both customers and potential customers. At the same time it should be suited for employees to buy into and be able to execute and manage correctly. The fundamental aim of CRM is that it is a consistent, brand enhancing personal experience for customers, and so in that respect, every touch point your customers come in contact with your company, or brand, follows your CRM model.

Firstly, let us understand what CRM looks like. Put simply, it is what it says on the tin. It is how you have a relationship with your customers. Every organisation has this in some form, from the window cleaner collecting payment at the end of cleaning - here having a face to face relationship, up to highly sophisticated international organisations with integrated call centres, websites, mail shots and stores engaging with their customers in every way possible. Between the two of these extremes, each will have information about their customers to varying degrees and then it is a case of how that information is used that sets you apart from the rest of the competition.

Benefits of customer relationship marketing:

Fundamentally CRM brings you closer to your customers. Not only in the respect of making customers feel like individuals, but over time a knowledge and understanding of customers needs, behaviours and preferences can build up, this can put you at an advantage to your competitors. The more information the customer gives you, the less likely they are to repeat with your competitor as loyalty is built.

Furthermore, the more information is gathered and understood of your customers, the better equipped you are to seek and acquire new prospects and customers based on your existing customer base. In the early days of business one can predict what the target market will look like, but it isn’t until you actually go out and acquire new customers that you can truly understanding which media works best, which trade shows are the best to attend, which offers are successful during sale periods and so on. But when you have historical data, then you can use this to great effect. Used wisely it can save you spending money on campaigns that don’t work, or save attracting customers that only make one transaction with you and then go off to a competitor.

Another benefit to CRM is that it greatly improves customer satisfaction. As a dialogue between customer and organisation develops, then it becomes easier to tailor your offering and service to your customers and prospects. For example, you may learn that you have segments of customers that communicate in different ways. Think of the technology that we have at our finger tips and different ways we can have a dialogue. One customer may appreciate phone calls; another may prefer the efficiency of e-mail, whilst somebody else may feel important when they receive a letter. By recording this information and responding to your customers in the same way they respond to you, then you are more likely to satisfy and please them - which can often go a long way when they are recommending your business to friends and family!

Understanding your customer base

In order to have a successful CRM program, then it is vital that you record information about your customers and their transactions in a customer database. Building, maintaining and interrogating the customer database, using key information recorded and captured on making contact with your product / service is a key theme to understanding the customer. In addition, it is also important to plan your database and map out the information that will be recorded to ensure you have a good picture of your customer’s activity. Such details would include:

  • Name
  • Date registered
  • Cumulative sales value (£)
  • Address
  • First sales value (£)
  • Date of last sale
  • E-mail
  • Number transactions
  • Product / service
  • Telephone
  • Average sales value (£)
  • Source of customer (where did they hear about you?)

From the information gathered in the customer database, we can go on to build a Recency, Frequency and Monetary Value (RFM) model. This would be the corner stone to segmenting the customer database and building a long term and continuous loyalty campaign around. That is to say the more loyal the customer the more that can be spent to retain that customer and increase their spend and frequency of visits.


RFM measures how recently the customer made a purchase, how frequently the customer made a purchase and how much money they spent. This would then be used to segment the database. For example:

Recency Frequency Value Total customers Coding
0-3 months 5+ £100+ 6,000 FL01
0-3 months 3 - 4 £50 - £99 5,500 FL02
0-3 months 1 - 2 £0 - £50 4,000 FL03
4-6 months 5+ £100+ 5,000 FL04
4-6 months 3 - 4 £50 - £99 6,500 FL05
4-6 months 1 - 2 £0 - £50 7,000 FL06
7-9 months 5+ £100+ 8,000 FL07
7-9 months 3 - 4 £50 - £99 12,000 FL08
7-9 months 1 - 2 £0 - £50 11,000 FL09
10-12 months 5+ £100+ 9,000 FL10
10-12 months 3 - 4 £50 - £99 1000 FL11
10-12 months 1 - 2 £0 - £50 8,500 FL12

The previous model illustrates how the customer database could look (the coding would be used for identification in your database) and then from this we would up sell those customers spending £0 – £50 and we would also try to re-engage those that have not made a transaction for the last 9 months.

It is important to remember that this model would just be a snapshot of the database and that it should be re-evaluated at least every quarter to ensure that customers do not go cold to your product / service and that those that are top of the segmentation model are rewarded and feel valued.

Take your customer on a journey

Above all your CRM model should represent a journey that your customers make, starting from making contact with you as a prospect, through to first transaction and then a loyal customer. It’s good practice to map out this journey so that everyone in your company is aware how to engage with customers, this not only promotes a synergy across functions and departments, but also reinforces a customer-centric operation that will automatically step up the importance of the customer.

A great method of mapping your CRM model could be to use a flow chart. The simpler the model then the more effective the execution and implementation will be. The following is a simple illustration of the journey a customer could make:

Prospect makes contact (requests a quote / catalogue etc)

Take contact details for customer database and send literature that will help convert them to a customer.

No prospect purchase

If the prospect hasn’t made a purchase within the first 3 months then send them a reminder of your product / service with a time limited incentive that will motivate them to make their first transaction. It could be that timing wasn’t right the first time around. It is surprising how many organisations miss this step and because of that miss out on a good percentage of first time customers.

Prospect becomes customer

When the prospect makes a purchase thank them. It could be a letter, email, or it could be a phone call, or if in store thank them for visiting, but above all else, make them feel valued. It is more cost effective to retain customers than it is to go out and acquire new ones. One incentive that works well at this stage is to ask them to recommend you to friends and family and they receive 10% off their next purchase for example. Getting your new customers to act as advocates for your business is a cheap and powerful method of recruiting new customers and the hard work is done for you because their friends have already convinced them that yours is the right business to be with.

Maintain the relationship

Like all relationships in our lives, they require some amount of effort, but the more you put in the more you will get back in return. Using your RFM model, segment your customer database so that your loyal customers feel valued and are rewarded and your customers that haven’t made a transaction for a while are re-engaged and retained as they may have had a bad experience or been acquired by one of your competitors. The RFM model is a great mechanic to identify those potential lapsed customers that can be contacted and brought back again.


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