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Master of Business Administration MBA Semester 3MK0006 Services
Marketing and Customer Relationship Management - 2
CreditsAssignment Set 1[30 Marks]Note: Each question carries 10
Marks. Answer all the questions.
Q.1 Mention the different bases for segmentation with
appropriate examples. [10marks]
ase segmentation
Over the last years we have been doing a tremendous amount of
customer
segmentation work with the marketing departments in companies
across a
number of industries. We have experienced that there are many
misconceptions
about what segmentation really is, why we do it, and what we can
expect to
achieve from it.
All too often marketing departments thinks that database
analysis is the first,
last, and only step in segmenting the base of existing
customers. In fact,
identifying clusters of common behaviors is only the first
activity you should
undertake in creating a customer base segmentation.
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Customer segmentation is not a piece of database work. It is a
strategic or
tactical business activity with with hard monetary benefits.
Yes, you do need to
do some data mining, and how clever you are in doing that is
important, but that
is not (or should not be) the primary activity.
Assuming that you are doing segmentation for the right reasons
and you
therefore know how to measure if you are successful, then what
are the steps
you need to make it happen?
We have found the following list useful:
1. Database analysis
Behavioral clusters
2. Market survey
Behavioral segment descriptions
3. Market strategy
Brand and market positioning
4. Market research
Strategic segments
5. Needs-based segmentation
Development segments
This is not intended to suggest that you must always perform all
the activities on
the list. Sometimes you may only need some of them to achieve
your objectives.
But it is an ordered list so start at the top and work your way
through until you
have achieved (and measured!) your goals.
Lets look at the steps in turn.
1. Database analysis to determine behavioral clusters
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The first step is to take your customer data and analyze it to
determine clusters
of similar behavior. Much has been written on the subject
elsewhere so I will not
go into technical details here.
But from a business perspective it is essential that you know
why you are
segmenting so you know which variables you want the clusters to
split. We
discussed this in some detail in our previous article about the
3 things we
want from customer segmentation.
You want the segments to be different on the variables that are
important for
your business. Otherwise the segments are not useful. All too
often we see
marketing departments commissioning data mining without
specifying clearly
how they want to use the resulting segments. Find us some
clusters is not a
project brief. The analysts will find you clusters without any
problems, but they
will not be commercially significant or deliver the bottom-line
benefits that you
need.
2. Survey your customers to obtain behavioral segment
descriptions
Sometimes the database clusters may be sufficient. Maybe you
only want to
improve the targeting of some existing campaigns. But if you
want to consider
developing new campaigns or new propositions then you need at
least some
business understanding of these customers. Not just what they do
(step 1) but
also who they are(step 2).
Usually you will to this by asking them. You take a small random
sample and
interview them about who they are. This is classic market
research and there is
plenty of available literature on the subject. You know what you
need to do, just
realize that your organization is probably not very good at it
unless it is a
specialized agency and it has a large budget (which is rarely
cost-justified). But it
doesnt have to be perfect, it has to be useful. You can (and
should!) almost
always trial your campaigns first to see if they really deliver
what you expect.
3. Determine your market strategy and your companys position
in
the market
Youll want to understand your organizations desired position in
the market so
you can develop the right segments witht he right propositions.
It is that visionthing again.
You need to have a vision for your company and where it is
going. As a
marketing manager, it is your responsibility to translate this
into customer
segments. Who are our customers. Who are our non-customers? Who
are our
customers that are not using all of our services or products?
How do we target
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them better and how do we articulate the value that we as a
company can add to
their lives.
You need this when you want to develop new campaigns, new
marketing
messages, and new propositions.
4. Determine your strategic segments
This is segmentation as a strategic business tool. Youll want to
understand your
organizations desired position in the market so you can
determine which
segments to develop. Depending on how strategic the marketing
department is
considered with the company, and depending on the status and
ambition of the
marketing manager, this may be a step too far. But if you want
to play at the toptable this is what you do.
One company we worked with commissioned additional market
research on their
segments to measure them on two dimensions: lifetime value
(x-axis) and how
well the segment was aligned with the organizations strategic
direction as
expressed in its vision (y-axis).
They then focused their attention on the segments to the right
of the dotted line.
That does not mean giving up on the others, but most of new
campaigns and
propositions target the strategic focus segments.
This picture proved to be an important tool in communicating at
the CXO levelwhat the company was about, where it was headed, what
the challenges were,
and where the opportunity lay. This is an extremely powerful
tool.
5. Needs-based segmentation for proposition development
There may not be enough growth opportunity in your strategic
segments from
the previous analysis. Or maybe you are responsible for
developing new
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propositions. In that case you want to develop an needs-based
segmentation not
just of your customers but of the whole market.
You can start with your customers and understand their needs,
especially the
needs your company is not currently fulfilling. In fact, you
shouldstart by
analyzing and questioning your customers since (a) it is much
easier to sell to an
existing customer and (2) you (probably) know who they are so
they are easy to
contact.
Eventually you will probably want to commission market research
to identify
unmet needs in the general population of potential customers.
But this is
expensive research and it is hard to make sure you develop the
right offers and
very expensive to bring them to market. So make sure you get the
most of your
existing customers.
Organizational alignment to make use of segments
We will talk more about this some other time. But as the
marketing manager it is
your responsibility to clearly demonstrate the business value of
the segmentation
that you are developing at each step in the process and to
ensure organizational
buy-in to use them as the reference for communication and
activities. Segments
are not just for marketing.
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1. 3 things we want from a segmentation of the customer
base
Over the last years we have been doing a tremendous amount of
customer segmentation work
with the marketing departments in companies across a number of
industries. We have experienced
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really is, why we do it, and what
we can expect to achieve from it. In this first article in a
series, we look at the goals and objectives
you should set yourself for the customer segmentation
effort.
2. Inflow segmentation measuring new customers by
value not volumeDo you have accurate and timely analysis of the
quality of the customers you are acquiring? Most
companies carefully track the quantity of new customers by the
hour, day, or certainly the week,
but it is still less common to track the quality of the inflow
as it happens. It is interesting to know
that we have acquired, say, 1000 new customers today, but so
very much more informative to
know that this inflow will bring in 22,000 of revenues over the
next year at 35% margin. Break it
down by channel and product to see who is performing and who is
not, and I as a marketing
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Monitoring the quality of the inflow and
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quality than your existing base, then you are setting your
company up for difficulties over many
years to come. Considering how much companies typically spend
acquiring each new customer,
this really should be a no-brainer. And yet many companies are
completely unnecessarily stuck at
reporting sales by volume instead of value.
3. Customer equity and market value in the UK mobile
industryInspired by Peppers & Rogers new book Return on
Customer (see our review), we decided to
calculate customer equity and return on customer equity for the
UK mobile industry to see if we
could measure the correlation with share price. We found a
strikin
4. ROC : Direct marketing and the tragedy of the
commons
Are (direct) marketing managers doomed to extinction simply
because the public acceptance of
marketing messages is a common good and it is therefore in
everybodys short-term interest to
over-use it in a Tragedy of the Commons ? Is there nothing we
can do
Join the discussion
Q.2 Discuss the challenges involved in services marketing. [10
marks]
Services marketing is a sub field of marketing, which can be
split into the two main areas of
goods marketing (which includes the marketing of fast moving
consumer goods (FMCG) and
durables) and services marketing. Services marketing typically
refers to both business to
consumer (B2C) and business to business (B2B) services, and
includes marketing of services
like telecommunications services, financial services, all types
of hospitality services, car rental
services, air travel, health care services and professional
services.
Services are economic activities offered by one party to
another. Often time-based, performancesbring about desired results
to recipients, objects, or other assets for which purchasers
have
responsibility. In exchange for money, time, and effort, service
customers expect value from
access to goods, labor, professional skills, facilities,
networks, and systems; but they do not
normally take ownership of any of the physical elements
involved.[1]
There has been a long academic debate on what makes services
different from goods. The
historical perspective in the late-eighteen and early-nineteenth
centuries focused on creation and
possession of wealth. Classical economists contended that goods
were objects of value over
which ownership rights could be established and exchanged.
Ownership implied tangible
possession of an object that had been acquired through purchase,
barter or gift from the producer
or previous owner and was legally identifiable as the property
of the current owner.
Adam Smiths famous book, The Wealth of Nations, published in
Great Britain in 1776,
distinguished between the outputs of what he termed productive
and unproductive labor. The
former, he stated, produced goods that could be stored after
production and subsequently
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These findings are of significant importance for any software
company that wants to be a
service provider as well and be successful in that business.
Master of Business Administration-MBA Semester 3MK0006 Services
Marketing and Customer Relationship Management - 2
CreditsAssignment Set 2(30 Marks)Note: Each question carries 10
Marks. Answer all the questions.
Q.1 Create an appropriate marketing mix for telecommunications
organisation. [10marks]
Mobile phones were originally used in the 1940s after the II
world warin vehicles such as taxi cab radios, two way radios in
police cruisers;
Agar (2003) claimed that the success of this car radio telephony
andAT & T highway service between New York and Boston in 1947
was the
beginning of mobile telephony success story. The first fully
automated
MTA (Mobile Telephone System A) was commercially lunched
byEricsson in Sweden in 1956 but have a disadvantage of weight as
it
weighs 40kg, although in Europe, radio telephony has been in
use
since 1926 in Germany between Berlin and Hamburg on first
classpassenger train (Wikimedia 2007). But it was just in 1995 the
mobiletelecommunication became low cost, rich in features, and the
mode of
communications world wide (Tom Farley 2005).
In 1971, ARP network was lunched in Finland and was considered
a
zeroth generation (0G) which provides slightly wider network
coveragecompared to the early and proprietary network. Following
this was the
first generation (1G), this are handheld mobile phone known
as
Motorola DynaTAC8000X which was a phone based on cellular
networkwith multiple based stations located relatively close to
each other.
Next on the scene is the second generation 2G which includes
theGSM, iDEN, IS-136 and IS-95 technology, it was used
massively
across the world. (Wikimedia 2007). But the third generation
technology 3G has proven to be more sophisticated and
haschallenged the 2G technology, the sequence of this
generation
indicates increasing capacity (higher transmission speed) and
richermessage (Dunnewijk T., & Hulten S. 2006)
http://blogs.msdn.com/blogfiles/nileshb/WindowsLiveWriter/CustomerperceptionofServiceQualityinSSSa_E34E/clip_image002_2.gifhttp://blogs.msdn.com/blogfiles/nileshb/WindowsLiveWriter/CustomerperceptionofServiceQualityinSSSa_E34E/clip_image002_2.gif
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3.1.2 Mobile telecommunication industry progressionThe mobile
network operation began in 1985 in the UK with Vodafoneand Cellnet
(now Telefonica 02), the market was then categorised as
duopoly market structure until two other network operators were
also
licensed in the early 1993 (Cave & Williamson 2006). Despite
theentrance of these two network operators, Vodafone and Cellnet
still
maintain 40% each of the total market share and were considered
tohave strong market power (Valletti & Cave 1996) which also
was one
of the reasons for the intervention of Ofcom. The government
developed a policy to regulate the pricing system by creating
acompetitive marketing environment which allows the interplay
of
different marketing strategies from the existing operators and
the newentrants. The UK market is not an exception of European
mobile
telecommunication as the mobile phones became increasingly used
for
business and personal activities worldwide (Tom Farley 2005).
Table 1show the percentage increase in the use of mobile telephone
across
Europe.
Table 1 Fixed and Mobile phones connections in percentage
ofpopulation 1993-2002
Sources: ITU, yearbook statistic, telecommunications service
1993-
2002The industry is well regulated but however, in an attempt to
figure out
whether the industry progression is standard created market
ormarket created standard, economist have argued that free
market
system of high competition is the best guarantee for
technological
progress and market growth while some government
advocatesargument negates this argument (Harald Gruber 2005). For
the
purpose of this study, the contemporary market forces and
strategiesadopted by different network operators will be critically
examine as the
industry over the past decade has been reshaped by commercial
forcesand technological change (keynote 2006). So this dissertation
work
shall also anticipate five years future market trend and weather
or not
Main telephone lines 40 51
Public payphones 2 2
Cellular mobile subscribers 2 76
1993 2002European Union -25
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commercial activities and rapidly changing technology will still
be theindustry driving forces
Q.2 What is CRM? Explain the emerging concepts in CRM. [10
marks]
Customer relationship management (CRM) is a widely-implemented
strategy for managing a
companys interactions with customers, clients and sales
prospects. It involves using technology
to organize, automate, and synchronize business
processesprincipally salesactivities, but also
those formarketing, customer service, and technical support.[1]
The overall goals are to find,
attract, and win new clients, nurture and retain those the
company already has, entice former
clients back into the fold, and reduce the costs of marketing
and client service.[2] Customer
relationship management describes a company-wide business
strategy including customer-
interface departments as well as other departments.[3]Measuring
and valuing customer
relationships is critical to implementing this strategy.[4]
Contents
[hide]
1 Benefits of CRM
2 Challenges
o 2.1 Complexity
o 2.2 Poor usability
o 2.3 Fragmentation
o 2.4 Business reputation
o 2.5 Security concerns
3 Types/variations
o 3.1 Sales force automation
o 3.2 Marketing
o 3.3 Customer service and support
o 3.4 Appointment
o 3.5 Analytics
o 3.6 Integrated/Collaborative
o 3.7 Small business
o 3.8 Social media
o 3.9 Non-profit and membership-based
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4 Strategy
5 Implementation
o 5.1 Implementation issues
o 5.2 Adoption issues
o 5.3 Statistics
o 5.4 Increasing usage and adoption rates
o 5.5 Help menus
6 Development
o 6.1 Clarity
o 6.2 Test users
7 Privacy and data security system
8 Market structures
9 Related trends
10 See also
11 Notes
[edit]Benefits of CRM
A CRM system may be chosen because it is thought to provide the
following advantages:
Quality and efficiency
Decrease in overall costs
Decision support
Enterprise agility
Customer Attention
[edit]Challenges
Successful development, implementation, use and support of
customer relationship management
systems can provide a significant advantage to the user, but
often, there are obstacles that
obstruct the user from using the system to its full potential.
Instances of a CRM attempting to
contain a large, complex group of data can become cumbersome and
difficult to understand for
an ill-trained user.
Additionally, an interface that is difficult to navigate or
understand can hinder the CRMs
effectiveness, causing users to pick and choose which areas of
the system to be used, while
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others may be pushed aside. This fragmented implementation can
cause inherent challenges, as
only certain parts are used and the system is not fully
functional. The increased use of customer
relationship management software has also led to an
industry-wide shift in evaluating the role of
the developer in designing and maintaining its software.
Companies are urged to consider the
overall impact of a viable CRM software suite and the potential
for good or harm in its use.
[edit]Complexity
Tools and workflows can be complex, especially for large
businesses. Previously these tools
were generally limited tocontact management: monitoring and
recording interactions and
communications. Software solutions then expanded to embrace deal
tracking, territories,
opportunities, and the sales pipeline itself. Next came the
advent of tools for other client-interface
business functions, as described below. These tools have been,
and still are, offered as on-
premises software that companies purchase and run on their own
IT infrastructure.
[edit]Poor usability
One of the largest challenges that customer relationship
management systems face is
poorusability. With a difficult interface for a user to
navigate, implementation can be fragmented
or not entirely complete.
The importance of usability in a system has developed over
time.[5] Customers are likely not as
patient to work through malfunctions or gaps in user safety,[6]
and there is an expectation that the
usability of systems should be somewhat intuitive: it helps make
the machine an extension of the
way I think not how it wants to me think.
An intuitive design can prove most effective in developing the
content and layout of a customer
relationship management system.[7] Two 2008 case studies show
that the layout of a system
provides a strong correlation to the ease of use for a system
and that it proved more beneficial for
the design to focus on presenting information in a way that
reflected the most important goals and
tasks of the user, rather than the structure of the
organization.[8] This ease of service is
paramount for developing a system that is usable.[9]
In many cases, the growth of capabilities and complexities of
systems has hampered the usability
of a customer relationship management system. An overly complex
computer system can result
in an equally complex and non-friendly user interface, thus not
allowing the system to work as
fully intended.[10]This bloated software can appear sluggish
and/or overwhelming to the user,
keeping the system from full use and potential. A series of 1998
research indicates that each item
added to an information display can significantly affect the
overall experience the user.[11]
[edit]Fragmentation
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Often, poor usability can lead to implementations that are
fragmented isolated initiatives by
individual departments to address their own needs. Systems that
start disunited usually stay that
way:siloed thinking and decision processes frequently lead to
separate and incompatible
systems, and dysfunctional processes.
A fragmented implementation can negate any financial benefit
associated with a customer
relationship management system, as companies choose not to use
all the associated features
factored when justifying the investment.[12] Instead, it is
important that support for the CRM system
is companywide.[13] The challenge of fragmented implementations
may be mitigated with
improvements in late-generation CRM systems.[14]
Q.3 How to formulate and implement effective CRM strategies? [10
marks]
The business imperative for 2003 is top-line growth initiatives
that increase customer
profitability. According to a new CRM magazine/ A.T. Kearney
survey, the two leading factorsdriving companies' CRM strategies
are increasing customer loyalty and retention, andmaximizing
customer profitability.
How do companies achieve these goals in an uncertain market? The
pending economicrecovery will have different effects on companies
that have tailored their CRM programs to thenew economic realities.
Winners will be those that capitalized on the downturn and
preparedfor increasing the value of customer relationships.
Companies that want to lock in customer loyalty and maximize
profitability need to employfour CRM tactics: 1) build a customer
growth strategy upon a CRM foundation of strategicintent and cost
management; 2) avoid the CRM whipsaw effect; 3) don't buy into
thetechnology silver bullet; and 4) measure satisfaction with CRM.
These tactics will ensure thatCRM programs can successfully adapt
to the pending changes in the economy.
Build a Customer Growth StrategyBusinesses must build top-line
growth strategies upon the foundation of their CRM programsby
ensuring that strategic intent and cost management measures are
institutionalized. Many
companies have not determined strategic intent or have not
focused on developing clearmetrics to measure performance. Yet many
have done some cost-cutting within customer-facing functions and
lowered their cost-to-serve just to reduce the overall cost of
sales. Thesecost-structure changes should be modified to invest in
these fields of CRM so that growthstrategies gain some early wins,
no matter what state the economy is in.
As the economy turns into recovery, the winners are likely to be
those who have not onlystabilized their customer service and sales
costs, but those who are improving theeffectiveness of customer
retention and loyalty programs. Improved customer
segmentation,customer satisfaction, and service strategies should
be tailored in downturns and expanded in
upswings, but need to remain long-term goals of any successful
CRM program.
Avoid the Whipsaw EffectSenior management commitment is critical
to the success of any major corporate initiative.CRM is certainly
no exception. In fact according to the CRM magazine/A.T. Kearney
surveyresults, IT decision-makers ranked executive sponsorship as
the most important factor formaximizing the return on their CRM
investments. If CRM initiatives are not in the CEO'sagenda, then
investments in these initiatives have a much lower probability of
success.
Additionally, because CRM is a fundamental shift in the way a
company does business with its
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customers, rather than just a one-time e-business initiative, it
requires continuous leadershipsupport over multiple years. This
type of long-term senior management support can only beachieved and
maintained if a long-term strategic plan is developed. The time
frame alsorequires the strategic plan to have built-in
contingencies for the ups and downs of thebusiness cycle. Without
this type of flexible strategy, companies get caught in a CRM
whipsaw:overinvesting in one year and then cutting to the bone in
the next. The result is unrealizedinvestments, squandered
opportunities, and a loss of employment for the CRM champion.
The
whipsaw may affect users as well. Employees whose new
customer-centric behaviors enableCRM success can get caught in the
whipsaw if communications about customer strategy andCRM processes
are not clear or consistent throughout changes in the business
cycle.
Don't Buy in to the Technology Magic BulletThe CRM vendor
landscape is changing rapidly. Placing all bets on a single vendor
ortechnology can prove disastrous. The unstable economy has caused
a vendor shakeout. It hasreduced the number of CRM vendors, but
also has enabled the strongest companies to survivewith the best
integrated offerings. Strong vendors, after acquiring or merging
with smaller
niche vendors, still have to refine the resulting integrated
offerings. Even so, researchindicates software functionality is not
the prime factor in selecting a CRM vendor. Financialviability and
ROI remain the most important factors in selecting a vendor, and
reflect the factthat the best-of-breed approach in recent years has
left a number of companies holding thebag of unsupported
applications.
The focus on vertical expertise has also been increasing.
Companies stung by the challengesand high costs of customizing
standard applications are demanding that the major vendors ofthe
CRM world ensure that vertical customizations are prebuilt into the
application they install.Customers are focusing on implementing the
best vertical application available. This shift hasalso been
pressuring vendors that have not caught up with the verticalization
wave or havepoorly packaged and standardized their industry
experience within applications.
Measure Satisfaction With CRMMeasuring CRM success has often
been elusive, but it is possible to measure satisfaction withCRM.
Companies have often measured success either by ROI or by changes
in customersatisfaction to justify CRM benefits. Although capturing
ROI and preventing CRM budgetexpansion is important, the
CRMmagazine/A.T. Kearney research indicates that 60 percent
ofcompanies claim their CRM initiatives met or exceeded
expectations. Of the rest, 25 percent
did not set expectations. So for the moment, there appears to be
more satisfaction with CRMprojects than not.
However, ROI generally measures the internal return of a
technology/ process or organizationimprovement project. In the
survey, external measures like customer satisfaction, retention,and
profitability--often the best indicators of how well customers view
their overall relationshipwith companies--were selected by only 37
percent, 33 percent, and 22 percent respectively.This leads to two
possible conclusions: 1) given the challenges of deploying CRM
initiativesand effecting customer change, companies may be
assigning lower levels of expected successwithout engaging their
customers; or 2) companies are embarking on expensive
CRMinitiatives without understanding the drivers of their customer
satisfaction, retention, andresulting profitability. In either
scenario, companies are shortchanging themselves by reducingthe
future value of their customer relationships and placing the
long-term success of thoserelationships at risk.
From an internal perspective, ROI was the dominant metric used
to measure returns, thoughnotably 21 percent of respondents didn't
know how their companies measured return. As for
time-to-return after project completion, most of those surveyed
were split between the six- to12-month time frame and more than one
year. This is on average longer than most e-businessinitiatives,
and reflects the fact that CRM often involves multiple channels and
functionsundergoing organizational, process, and technology
changes.
Given the complexity and level of investment in CRM, companies
need to ensure theyunderstand the drivers of value in their
customer relationships before they embark on major
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initiatives, as well as build robust business cases for internal
measures of CRM success.
Plan for GrowthUp to 44 percent of companies do not have a
strategic plan in place, although manyrespondents are planning or
implementing CRM initiatives. Those that do not have one in
placeare likely to be out of position to reap benefits from CRM. As
benefits from CRM take longer onaverage than benefits from
e-business, there will be a lag between the companies that have
a
plan that can execute and those that will need to start a
strategic plan. Developing a CRMstrategic plan takes one to two
quarters, which is about the duration of catch-up thatcompanies
without a current plan will face. While cost reductions will
provide a sound CRMfoundation, the real benefits come from top-line
growth--and these gains should be pursuedwithin a CRM program no
matter which way the economic pendulum is swinging.
Those companies that don't have a sound CRM strategy should use
the current economicdownturn to begin developing their strategy to
include both short- and long-term scenarioswith ranges of ROI for
different CRM initiatives. Then, depending on how and where the
economy improves, their focus will be on executing against the
best scenario. Those withplans should prepare their customer-facing
units for the economic recovery ahead and ensurethat the
organization is aligned with incentives for growth. Those companies
with initiatives onhold should have implementation plans drafted so
they may ramp up quickly when CRMbudgets are restored.
It is this advanced planning--along with building a customer
growth strategy, avoiding theCRM whipsaw effect, avoiding the
technology silver bullet, and measuring satisfaction withCRM--that
will increase customer loyalty and retention and maximize customer
profitability.
