Week 2: CRM Strategies

Question 1

Who are high/low CtS customers?

What are strategies for high and low cost to serve customers with high/low net margins and how can you manage unprofitable customers?

Answer 1

High Cost-to-Serve

• order custom products
• order small quantities
• unpredictable order arrivals
• customised delivery
• large companies shipping higher quantities
• require large amounts of presales support
• large amounts of post sales support
• require company to hold inventory
• pay slowly
• integrated collaborative, value adding relationship
• greater discussion about purchases & long term deals
• larger equipment and initial outlay costs required by buyer, greater discretion for supplier to offer packages and loyalty discounts

Low Cost-to-Serve

• order standard products
• order large quantities
• predictable order arrivals
• standard delivery
• smaller companies, less shipping
• transactional-exchange with low complexity
• info and operational assistance minimal
• less price bargaining/deals as lower commitment
• require electronic processing
• little to no pre or post sales support
• pay on time

High CtS & High Net Margin Realised
-> costly to serve but pay $$$

High CtS, Low NMR
->leverage buying power, low price but high customisation = challenging

Low CtS, High NMR
-> product is crucial

Low CtS, Low NMR
-> price sensitive but few special demands

= explore ways to reduce cost of serving customer eg. shift post-sales support online

• direct attention to customer actions contributing to higher selling costs eg. unpredictable buying behaviour, demands on personnel (encourage customer to work more efficiently with firm)
• new customer might initially be high CtS but may end up being highly profitable later

=> if customer resists attempts to convert profitability, may fire

Question 2

What are the 5 priorities for customer relationship management strategies

Answer 2

1. Acquire right customer
   - identify most valuable customers
   - calculate their share
2. Craft right value proposition
   - determine products customers need now and in the future, compare against competitor offerings
   - identify new products to offer
3. Institute best processes
   - research best way to deliver product/service to customers
   - determine service capabilities to be developed and technology investments required to implement the strategy
4. Motivate employees
   - identify tools employees need to foster relationships
   - earn employee loyalty through training, development and career paths
5. Learn to retain customers
   - established customers buy more
   - cost of serving loyal customers declines, less expensive than acquiring new customers