Better Targeting your Customers with CRM Value Chain Model

This article you will learn the following about CRM Value Chain Model in the following sections:

1. What is CRM
2. How CRM works
3. CRM strategies and models
4. What is CRM Value Chain Model,
5. 5 Primary stages for implementation of CRM Value Chain
6. Supporting conditions
7. Criticism for CRM Value Chain Model.

1. WHAT IS CRM?

Customers these days are very smart and already well informed. They are ready to make decisions before they approaches a business. The Customer Relation Management or CRM is the fundamental business policy that incorporates internal procedures and functions as well as external systems to generate and provide value to targeted customers while making a profit for a business. CRM is enabled by softwares and Information Technology, which uses customer data derived from the internet and various other sources. It is used in all aspects of customer relations from identifying customers, building customer relationship, providing information to customers to changing and influencing customer perception of the business and its products or services. CRM requires understanding customers and their need as well as their expectations, to provide service or product that has value to them.

Aims of CRM

CRM is an essential part of marketing, especially online marketing. The main purpose of any business is to sell its product or service to a customer in order to generate income or revenue. The aims of CRM are derived from this need of the businesses to have customers who are strategically significant. CRM aims to understand the customer, retain them by providing a satisfying customer experience. It also aims at attracting new customers, convert inquiries into business opportunities, increase profitability and reduce the cost of managing customers. CRM is the tool through which a business can build up a mutually beneficial relationship with its strategically significant customers.

2. HOW DOES CRM WORK?

Lead generation and customer data are essential for CRM to work. Without understanding and analyzing the customer or market requirements, a business cannot hope to optimize customer experience and, therefore, generate new business. CRM isn’t only about marketing, it is an integration of all the processes that deal with customers, which include – sales, marketing, customer service and support as well as collecting customer data, analyzing it and implementing the findings to the business process.

• Marketing: CRM has its base in marketing and is closely related to it. Marketing has evolved over the years from focusing on direct sales to customer relationship marketing. The focus has now shifted to creating loyal customers by offering not just a product, but an experience.
• Sales Force Automation: The job of the sales department is to create strategies to maintain and build customer relationships in order to generate revenue. In order to fulfil this part of their duties, the sales department needs to be automated. Collecting data regarding the customers – their age, sex, address, phone numbers, personal details, professional details, preferences and spending patterns etc. It is to create a profile that can be used to enhance customer relationship.
• Customer Service and Support: One of the most important factors for customer satisfaction is customer service and support. The after sales service and support offered by a business determines the continuing customer relationship. If the service and support system is not adequate, the customer relation will suffer.
• Insights and Analytics: The entire CRM process is dependent on information technology and data analysis. All the customer data is collected and analyzed using the software. This gives businesses insights into their customers, their preferences and buying patterns, providing it with guidelines to improve overall customer experience.

3. CRM STRATEGIES AND MODELS

CRM strategies are about building a customer relationship model that is so successful that it is hard for competitors to break the customer loyalty. There are five basic models on which CRM of any business can be based. These models should be adapted according to the requirements of a business. These models are:

IDIC Model

This model was established by ‘Pepper and Rogers’ in 2004. The IDIC model is a four-step approach to CRM. These four steps are:

1. Identify your customers and understand them and their individual requirements.
2. Differentiate your customers based on their value to the business and what they require from it.
3. Interact with the customer to understand their expectations and values.
4. Finally, customize your services and products to reflect the needs of your customer.

QCi Customer Management Model

Quality Competitive Index Model or QCi is a model of CRM that focuses on the customer rather than processes. QCi is based on three activities, which are Acquisition, Retention, and Penetration. These are the activities that a business needs to perform so as to retain and acquire customers. It also needs technology to assist the processes. QCi Model includes activities that are related to employees, people, organization, and technology.

Payne’s Five Process Model

Payne’s five processes model is based on the fact that the aim of CRM is to enhance acquisition and retention of customers by building and maintain a relationship with a valuable customer. The process is break down into five processes:

• strategy development process,
• value creation process,
• multichannel integration process,
• performance assessment process and finally,
• information management or analytical process.

Gartner’s CRM Model

This model was developed by a leading IT company – Gartner Inc. According to this model, a business needs to focus on 8 things to successfully implement CRM. These include – developing CRM vision, CRM strategies, designing valued customer experiences, creating CRM processes, CRM Technology, CRM information, CRM metrics and organizational collaboration.

Buttle’s CRM Value Chain Model

This model is probably the most commonly used model for CRM. There are two stages to the model – the primary stage and the secondary stage. The secondary stage is created to provide support to the primary stage. Both the stages have to work together to enable CRM.

3. WHAT IS CRM VALUE CHAIN MODEL?

The concept of a value chain was derived by Michael Porter. He put forth the idea of the value chain as a means of identifying all actions, processes or stages that are involved in creating outputs from inputs. These outputs are offered to a customer who is at the end of the line of the value chain. The amount a customer is willing to pay for a product or a service is its value. The revenue for a business is the total value less the cost that it has incurred in providing the product to the customer. CRM Value Chain Model is a set of strategies that a business ought to follow when developing their CRM strategies. Most modern businesses work on the principle of Customer Relationship Management as it helps to deliver value to customer and creates, as well as, manages the relationship of a business with its customers in a more effective manner. A valuable relationship with one strategically significant customer can lead to customer loyalty, retention and finally to referrals to other potential customers.

Save

Based on Buttle’s CRM Value Chain Model

The CRM Value Chain Model looks at all the stages that are required to build a relationship with a customer. These can be categorized as Primary Stages and Support Stages.

Who is a strategically significant customer?

A customer who creates great value for a business is deemed to be a valuable customer for the business. In order to retain such a customer for a period of time, the business has to follow some strategies. Only about 20% of all the customers of a business can be said to be strategically significant customers. They generate more revenue, value and loyalty for a business and the business has to deal with them in an entirely different manner than the rest of its customers. Strategically significant customers (SSC) buy more, are trend setters, and act as referrals for the business.

There are four types of SSC. The one on top is the High lifetime value customer as these customers create the greatest value for the business. Lifetime value potential of a customer is derived by calculating the present value of all future profits that a business might earn from one single customer. One thing to consider is that not all high volume customers can be regarded as high lifetime value customers. The next type of SSC is known as Benchmarks. These are the well-known customers, and that other consumers are likely to emulate. The third type is the Inspirations. These are customers who inspire a company to change its products or reduce costs. The last of the SSC are what are referred as the cost magnets. These customers pay for a large percentage of fixed costs so that the product can be sold to smaller consumers at a profitable margin.

5. 5 PRIMARY STAGES FOR IMPLEMENTATION OF CRM VALUE CHAIN

The CRM Value Chain Model consists of several stages or processes. These are divided into two main categories Primary Stages and Secondary Stages. Above is a diagrammatic representation of the CRM Value Chain Model.

Primary Stages of the CRM value chain include the following processes:

1. Customer portfolio analysis,
2. Customer intimacy,
3. Network development,
4. Value proposition development and finally
5. Manage customer lifecycle.

Each of these stages has many concepts, processes and tools that are used to enable the strategy. These primary stages help to locate and study a customer and his habits, interact with the customer to develop a relationship. Once the relationship is established, to provide the customer services that would mutually benefit the customer and the company, and finally to maintain the relationship. CRM needs to be supported by a strong will to serve the customer and the desire to build a lasting relationship. CRM can only succeed if the customer is satisfied and happy with the product and the service of the business. Let us look at how this is achieved.

Stage 1: Customer portfolio analysis

The first thing that a business needs to do is to identify the customers that it needs to target. These are the customers who create the most value for the company, and the company sees them as the most desirable customers. This stage is implemented through analysis of data that the company has collected about its customers. It gives insights to companies so they can define their strategies to interact more effectively with a customer, to understand the customers and their needs and also to discover the high lifetime value customers of the business.

Stage 2: Customer intimacy

Once all the information about the customers is in hand, it is time to engage with the customers and interact with the ones that are most valuable, to know them and to provide them greater value than the competitors would, in order to retain them. The business needs to know its customers well if it wishes to retain them. This is done through collecting and mining data through various channels. All relevant data regarding a customer is provided at the point of contact in order to create a better relationship between a customer and the business.

Stage 3: Network development

The term network here includes all stages of interaction between the business and its customers. It includes all your strategy partners, the suppliers, staff, investors, partners and anyone who can influence interaction between the business and the consumer. The aim is to ensure that the customer enjoys the interaction with the company and is satisfied and happy with the business, its services, product, and employees. With the customer data available at all points of contact, it would make it easier for the network to work together in order provide better service to the customer.

Stage 4: Value proposition development

Once a business has learned as much as they can about a customer and have made a decision about who they would prefer to serve, they can now identify and create sources of value for their chosen customers. This can be done by creating tailor-made offers and experiences that will meet all the requirements, preferences and expectations of the customer. This is a shift in business policy from the traditional strategy of concentrating on a product to focusing on providing better service to the consumer and concentrating on reducing process costs and improving service to create more value. The focus is on creating value for the customer.

Stage 5: Manage customer lifecycle

The lifecycle of a customer is defined as his journey from the stage of being a prospect right through to the end of the line where the prospect has become a customer, and is subsequently happy and satisfied with his relationship and experience with the business and its services, and is ready to turn into an advocate for the business. To manage the lifecycle of a customer, the company needs to look at both the processes and the structure of its organization. The processes will require attending to the acquisition, retention and finally the development of the customer. The structure will need to focus on the ways to manage the customer relationship.

6. SUPPORTING CONDITIONS FOR CRM VALUE CHAIN

In order for the five primary stages of CRM to work and the business to experience the full benefit of CRM, they need to be supported by certain secondary stages or conditions. These are:

Leadership and culture

The leadership and culture of the business determine the focus of the business. It is up to the leaders to provide direction and prioritize CRM within an organization. If the leadership is inclined towards CRM, it will provide the direction that is required to implement customer relationship, inculcate a culture for customer satisfaction and guide the rest of the organization to follow the example.

Relationship between Leadership and CRM

There is a direct relationship between CRM and leadership. The leadership will decide which direction to choose and guide their employees to follow suit. Without the interest of the leadership, it will not be possible to implement CRM in an organization and hope for it to succeed. All the policies and guidance has to come from the leadership regarding the ways and means to provide the customer the value they demand.

Customer-Centric Culture

It is important for a business to have a customer-centric approach within its organization in order for CRM to be successful. The leadership needs to provide a work environment that places customer satisfaction as its most important agenda. This would require placing systems in place to provide information about the customer to employees dealing with them. CRM will be properly implemented if the various departments of an organization work together. The employees who deal with customers need to be trained so that they know how to interact with a customer properly. Customer interaction at all points has to be friendly and easy, this includes dealing with customer complaints and feedbacks, managing delivery and service to the customer, providing incentives and offers that will add value to the customer’s experience. Employee behavior is one of the most important parts of the customer experience. It is the duty of the leadership to ensure that the employee behavior leaves a positive influence on the customer.

Save

Processes

All the tasks or activities that go on to create something of value are called processes.

What are business processes?

A business process is a set of tasks or activities that work together to produce a particular service or product. The product may be generic and created for all the customers, or custom made according to the specifications or preferences of a particular customer.

Classification of processes

There are three types of business processes in every business. These processes need to work together for an organization to function properly.

1. Vertical and horizontal: This is the flow of work from top to the bottom of the management chain as well as a linear division of work and command. The policies that are created at the top have to flow through the organization right down to the bottom of the pyramid.
2. Front and back office: The front office is where the customer relations takes place, but it cannot function without proper support from the back office staff. The Sales, Marketing, and service department need to work with the accounts, procurement and manufacturing to provide complete customer satisfaction.
3. Primary and secondary: Primary processes include the core business practices that are supported by a secondary processes such as recruitment, technical support, customer care, etc.

All the systems need to be in sync for CRM to be implemented fully.

Analytical CRM processes

These are processes that are employed by the back office, or departments that do not deal directly with the customers. Analytical processes are designed to dig deep into customer data and discover the real intentions and behavior of a customer. Based on the findings of the analysis, the business can improve its profitability. This is done through the followings:

• Customer profiling: finding and recording all relevant data about a customer;
• Opportunity management: Creating opportunities and marketing channels or products to attract more customers;
• Campaign management: create sales and marketing processes that are designed to attract more customers.

Employees / people

The people in any business are the one who interact with the customers. How they interact is one of the most important parts of CRM. Whether it is the sales staff or the marketing staff, the delivery, and logistical staff or the support or service departments, customers will at some point of time interact with people in each of these departments. It is essential that the people or employees are trained to deal with customers to ensure a positive interaction. It is not always possible for a positive interaction, but the employees need to know how to deal with all kinds of the situation so that the customer feels that the business cares about its customers.

Data and Information Technology

CRM is totally dependent on Data and Information technology. Data provides all the insights that are essential for CRM. High-quality data is the main requirement of CRM. It needs to the acquired, stored, analyzed, maintained, improved and distributed properly to be of any value. Customer information is what drives CRM and determines all the strategies that need to be implemented for CRM. The data requirements for CRM are determined by the actions taken at the primary stages.

Role of data in CRM

In order to gain insights into customers and create a relationship with them, it is essential to understand them, their preferences, their requirements, and their demographics. All this is made possible only by collecting data and managing it. Data is required for both business operations and analysis.

• Business operations: Data provides important information regarding the customers, the processes, and the services of the company and their efficiency. It allows companies to gauge what the customers want and change their policies to reflect customer demands and values.
• Analysis: Data allows the companies to analyze its business processes and cut costs where possible to improve revenue while providing better value to customers.

7. CRITICISM FOR CRM VALUE CHAIN MODEL

Today, CRM is seen only as a software and IT solution for front and back office. This limits the application of CRM to only some business processes, excluding a lot of others. The benefit of the model can be fully derived only if all the processes are integrated to work together to create greater value for the customer.