Putting a Value on Customer Relationship Management

Read this section to discover effective channels of CRM and how powerful they can be to a company. Learn the long-term value of a satisfied customer and how a company can implement different strategies to maintain that relationship. Effective CRM initiatives equal increased customer satisfaction which leads to increased sales and positive word of mouth advertising.

Broadly speaking, we can look at customer relationship management (CRM) from three viewpoints:

  • A marketing perspective. Increasing the number of people who know about your service or product.
  • A sales perspective. Turning the people who know about your service or product into people who have purchased your service or product.
  • A service perspective. Ensuring people who have interacted with you are satisfied and delighted.

Effective CRM across all three channels can also create a powerful new marketing and referral force for a company: its happy customers. Delighting customers fosters positive word of mouth.

While CRM is a customer-centric approach to doing business, CRM needs to be approached strategically – in line with the business objectives of a company.

The first step to any CRM initiative is to understand the value of a customer relationship to a business. While this is unique to each customer, data mining can be used to determine the value of segments of customers.

Figure 17.1 The Value of a Customer Relationship to a Business

Relationship value equals revenue generated minus cost to acquire and maintain.

The revenue a customer generates is the sales made to the customer. We can calculate this on a one-off basis, which relates directly to the cost of acquiring that particular sale, or we can calculate the revenue over the lifetime of the customer relationship. Be sure to include the referrals the customer makes when you calculate the entire amount of revenue they generate.

The cost to acquire the customer refers to the marketing and advertising channels we use to attract the customer. In eMarketing, this is the CPA (cost per acquisition) of any of the channels we used to acquire a customer. The benefit of eMarketing is that it is highly measurable and trackable, which allows us to calculate CPA relatively accurately.

The lifetime value of a customer refers to the calculation of the costs to acquire and retain a customer, against all of the purchases they made throughout the lifetime of the customer relationship. We can also look at customer value in terms of the referrals the customer generates for a company.

For example, a customer looking to buy a digital camera is likely to search on Google for cameras. As a company selling digital cameras, your excellent PPC (pay-per-click) advertisement and compelling offer attracts the potential customer who clicks through to your Web site. Impressed with your product offering, they purchase a camera from you and signs up for your e-mail newsletter as part of the payment process.

Analyzing the spending on your PPC campaign against the sales attributed to the campaign will give the cost-per-acquisition of each sale. In this case, this is the cost of acquiring the new customer.

Since they have now signed up for your newsletter, each month you send them compelling information about products they might be interested in. If you have taken note of their interest in photography, these newsletters could focus on photography and highlight additional products they can use with their new camera. The costs associated with sending these e-mails are the costs of maintaining the relationship with the customer. When they purchase from you again, you can measure these costs against the repeat sales they are likely to make.

Mini Case Study: Defining Loyalty and Customer Value

While most companies define customer loyalty based on the repeat purchases of happy customers, some business are built around one-off purchases. Wedding photography is one of those businesses. With so much time and effort invested in each customer relationship, how can this be returned into repeat business?

Bella Pictures focuses on ensuring its very satisfied brides refer its service to friends and family. In fact, 30 percent of new business comes from these referrals.

It also offers services to wedding guests, such as allowing them to order wedding photos themselves, which increases its customers for each wedding. Nicole Lewis, “Marrying CRM to a New Definition of Loyalty,” InsideCRM, Oct. 23, 2008.

While CRM initiatives need to satisfy customer goals – increased customer satisfaction and approval – these need to be in line with business goals. Business goals are to increase overall revenue. In terms of CRM, this can be to increase revenue generated by each customer, to increase the number of customers, to reduce the costs of acquiring a customer, or a combination of all three.

It is important to align CRM initiatives with business goals so you can measure the success of the initiatives. It is here that we can set CRM goals across marketing channels, sales channels, and service channels.

Mini Case Study: Customer Service as Public Relations

Zappos, a U.S. online shoe retailer, bases much of its success on its customer service. It offers free shipping on all purchases and free returns. In fact, goods are shipped with a preprinted return label, to make the process straightforward for customers. Zappos also invests heavily in its customer service team and empowers each member to do what they need to do to delight customers.

For example, Zaz LaMarr blogged about her experience with Zappos. She had meant to return some shoes to Zappos, but she did not have time to after her mother passed away. Zappos arranged to have UPS come pick up the shoes and then sent her flowers.

Yahoo! showed nearly 2,000 links to her blog post, which generated the following comments:

  • Zappos is the best company in America.
  • Zappos is pretty amazing…you can sometimes find better prices at other stores for the same shoes, but its customer service is worth a few extra dollars.
  • Wow, customer service still exists. This company will get my business.

There is no doubt that Zappos’ customer service costs are high. It offers free shipping and its customer service team has the authority to make gestures such as the one above. The return to Zappos in terms of goodwill is almost immeasurable and leads to increased referrals, sales, and customer loyalty. Meg Marco, “Zappos Sends You Flowers,” The Consumerist, Oct. 16, 2007.

When it comes to the marketing channel, we can use CRM initiatives to acquire new customers and market to existing customers (or acquire new sales from existing customers).

Key Takeaways

  • We can look at CRM from several perspectives:
    • Marketing
    • Sales
    • Service
  • Making customers happy fosters positive word of mouth.
  • We should approach CRM strategically. The first step of any CRM initiative is to understand the value of a customer relationship to a business. We can use data mining to help with this.
  • CPA (cost per acquisition) refers to the cost of any channels used to acquire a customer (marketing and advertising).

Creative Commons License This text was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor.

Last modified: Monday, December 16, 2019, 12:20 PM