CIS 2050 Chapter 11:

CRM Policies Share Two Basic Elements:

1. Customer Touch Points Organizations must recognize the numerous and diverse interactions that they have with their customers. These various types of interactions are referred to as customer touch points. Traditional customer touch points include telephone contact, direct mailings, and actual physical interactions with customers during their visits to a store. 2. Data Consolidation Data consolidation also is critical to an organization's CRM efforts. The organization's CRM systems must manage customer data effectively. In the past, customer data were stored in isolated systems (or silos) located in different functional areas across the business.

Despite their benefits, on-demand CRM systems have potential problems.

1. First, the vendor could prove to be unreliable, in which case the company would have no CRM functionality at all. 2. Second, hosted software is difficult or impossible to modify, and only the vendor can upgrade it. 3. Third, vendor-hosted CRM software may be difficult to integrate with the organization's existing software. Finally, giving strategic customer data to vendors always carries risks.

Five Basic Components of SCM:

1. Plan: Planning is the strategic component of SCM. Organizations must have a strategy for managing all the resources that go toward meeting customer demand for their product or service. Planning involves the development of a set of metrics (measurable deliverables) to monitor the organization's supply chain to ensure that it is efficient and it delivers high quality and value to customers for the lowest cost. 2. Source: In the sourcing component, organizations choose suppliers to deliver the goods and services they need to create their product or service. Supply chain managers develop pricing, delivery, and payment processes with suppliers, and they create metrics to monitor and improve their relationships with their suppliers. They also develop processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to manufacturing facilities, and authorizing supplier payments. 3. Make: This is the manufacturing component. Supply chain managers schedule the activities necessary for production, testing, packaging, and preparation for delivery. This component is the most metric-intensive part of the supply chain, where organizations measure quality levels, production output, and worker productivity. 4. Deliver: This component, often referred to as logistics, is where organizations coordinate the receipt of customer orders, develop a network of warehouses, select carriers to transport their products to their customers, and set up an invoicing system to receive payments. 5. Return: Supply chain managers must create a responsive and flexible network for receiving defective, returned, or excess products back from their customers, as well as supporting customers who have problems with delivered products.

IOSs enable the partners to perform a number of tasks:

1. Reduce the costs of routine business transactions; 2. Improve the quality of the information flow by reducing or eliminating errors; 3. Compress the cycle time involved in fulfilling business transactions; 4. Eliminate paper processing and its associated inefficiencies and costs; 5. Make the transfer and processing of information easier for users.

Supply Chain involves three segments:

1. Upstream, where sourcing or procurement from external suppliers occurs. In this segment, supply chain (SC) managers select suppliers to deliver the goods and services the company needs to produce its product or service. Further, SC managers develop the pricing, delivery, and payment processes between a company and its suppliers. Included here are processes for managing inventory, receiving and verifying shipments, transferring goods to manufacturing facilities, and authorizing payments to suppliers. 2. Internal, where packaging, assembly, or manufacturing takes place. SC managers schedule the activities necessary for production, testing, packaging, and preparing goods for delivery. SC managers also monitor quality levels, production output, and worker productivity. 3. Downstream, where distribution takes place, frequently by external distributors. In this segment, SC managers coordinate the receipt of orders from customers, develop a network of warehouses, select carriers to deliver products to customers, and develop invoicing systems to receive payments from customers. The flow of information and goods can be bidirectional. For example, damaged or unwanted products can be returned, a process known as reverse flows or reverse logistics. In the retail clothing industry, for example, reverse logistics involves clothing that customers return, either because the item had defects or because the customer did not like the item.

Demand Forecast

Demand for a product can be influenced by numerous factors such as competition, prices, weather conditions, technological developments, overall economic conditions, and customers' general confidence.

Just-in-Time (JIT) Inventory System

Essentially, JIT systems deliver the precise number of parts, called work-in-process inventory, to be assembled into a finished product at precisely the right time. Although JIT offers many benefits, it has certain drawbacks as well. To begin with, suppliers are expected to respond instantaneously to requests. As a result, they have to carry more inventory than they otherwise would. In this sense, JIT does not eliminate excess inventory; rather, it simply shifts it from the customer to the supplier. This process can still reduce the overall inventory size if the supplier can spread the increased inventory over several customers. However, that is not always possible.

Call Center (most-known CIC)

a centralized office set up to receive and transmit a large volume of requests by telephone

Purchasing Profile

a snapshot of a consumer's buying habits that may lead to additional sales through cross selling, up selling, and bundling.

Open-Source CRM Systems

are CRM systems whose source code is available to developers and users.

CRM Systems

are information systems designed to support an organization's CRM strategy. CRM systems lie along a continuum, from low-end CRM systems— designed for enterprises with many small customers—to high-end CRM systems—for enterprises with a few large customers.

Material Flows

are the physical products, raw materials, supplies, and so forth that flow along the chain

Electronic Data Interchange (EDI)

is a communication standard that enables business partners to exchange routine documents, such as purchasing orders, electronically. EDI formats these documents according to agreed-upon standards. It then transmits messages over the Internet using a converter, called a translator.

Customer Relationship Management (CRM)

is a customer-focused and customer-driven organizational strategy. That is, organizations concentrate on assessing customers' requirements for products and services and then providing high-quality, responsive service. CRM is not a process or a technology per se; rather, it is a customer-centric way of thinking and acting. An organization's overall goal is to maximize the lifetime value of a customer, which is that customer's potential revenue stream over a number of years.

Bundling

is a form of cross selling in which a business sells a group of products or services together at a lower price than their combined individual prices.

Up Selling

is a sales strategy in which the business person provides to customers the opportunity to purchase related products or services of greater value in place of, or along with, the consumer's initial product or service selection.

On-Demand CRM System

is one that is hosted by an external vendor in the vendor's data center. This arrangement spares the organization the costs associated with purchasing the system. Traditionally, organizations utilized on-premise CRM systems, meaning that they purchased the systems from a vendor and then installed them on site.

Supply Chain Visibility

is the ability for all organizations in a supply chain to access or view relevant data on purchased materials as these materials move through their suppliers' production processes and transportation networks to their receiving docks.

Sales Force Automation (SFA)

is the component of an operational CRM system that automatically records all of the components in a sales transaction process. SFA systems include a Contact Management System, Sales Lead Tracking System, Sales Forecasting System, Product Knowledge System, and Configurators.

Product Knowledge System

product knowledge system, which is a comprehensive source of information regarding products and services.

Collaborative CRM Systems

provide effective and efficient interactive communication with the customer throughout the entire organization.

Loyalty Programs

recognize customers who repeatedly use a vendor's products or services. Loyalty programs are appropriate when two conditions are met: a high frequency of repeat purchases, and limited product customization for each customer. The purpose of loyalty programs is not to reward past behavior, but to influence future behavior.

Bullwhip Effect

refers to erratic shifts in orders up and down the supply chain. Basically, the variables that affect customer demand can become magnified when they are viewed through the eyes of managers at each link in the supply chain. If each distinct entity that makes ordering and inventory decisions places its interests above those of the chain, then stockpiling can occur at as many as seven or eight locations along the chain.

Configurators

that enable customers to model the product to meet their specific needs.

Pull Model (also known as make-to-order)

the production process begins with a customer order.

Push Model (also known as make-to-stock)

the production process begins with a forecast, which is simply an educated guess as to customer demand.

Customer Interaction centers (CIC)

where organizational representatives use multiple channels such as the Web, telephone, fax, and face-to-face interactions to communicate with customers. The CIC manages several different types of customer interaction.

Mobile CRM System

is an interactive system that enables an organization to conduct communications related to sales, marketing, and customer service activities through a mobile medium for the purpose of building and maintaining relationships with its customers.

Supply Chain

is the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end customers. A supply chain also includes the organizations and processes that create and deliver products, information, and services to end customers.

Cross Selling

is the marketing of additional related products to customers based on a previous purchase. This sales approach has been used very successfully by banks.

Supply Chain Management (SCM)

is to improve the way a company finds the raw materials it needs to produce a product or service and deliver it to its customers. That is, supply chain management is the process of planning, organizing, and optimizing the various activities performed along the supply chain.

Extranets

link business partners over the Internet by providing them access to certain areas of each other's corporate intranets.

Vendor-Managed Inventory (VMI)

occurs when the sup- plier, rather than the retailer, manages the entire inventory process for a particular product or group of products.

Analytical CRM Systems

provide business intelligence by analyzing customer behavior and perceptions. Important technologies in analytical CRM systems include data warehouses, data mining, decision support, and other business intelligence technologies

Operational CRM Systems

support front-office business processes. The two major components of operational CRM systems are customer-facing applications and customer- touching applications.

Utility Computing (or software-as-a-service)

the vendor creates and maintains the system, the organization's employees need to know only how to access and utilize it. Salesforce (www.salesforce.com) is the best-known on-demand CRM vendor.

Customer-Touching CRM applications (or electronic CRM (e-CRM) applications)

where customers deal directly with a company representative, customers interact directly with these technologies and applications.

Sales Forecasting System

which is a mathematical technique for estimating future sales.

Sales Lead Tracking System

which lists potential customers or customers who have purchased related products.

Contact Management System

which tracks all contacts that have been made with a customer, the purpose of each contact, and any follow-up that might be necessary.

Analytical CRM systems analyze customer data for a variety of purposes, including:

1. Designing and executing targeted marketing campaigns; 2. Increasing customer acquisition, cross selling, and up selling; 3. Providing input into decisions relating to products and services (e.g., pricing and product development); 4. Providing financial forecasting and customer profitability analysis.

N-Control

A company called N-Control invented the Avenger video game console controller that was originally designed to help gamers with physical disabilities play video games. The Avenger was also marketed to enhance the performance of "hardcore gamers." Regardless of whether organizations have implemented a social media strategy, customers are increasingly using social media such as Twitter and Facebook. Significantly, these customers routinely inform the world how they feel about companies, their products, and their services. Their activities range from a Facebook group begging Trader Joe's (www.traderjoes.com) to open a store in a certain geographic location to a blogger complaining about a washing machine to a million followers. In today's highly technical and competitive environment, companies ignore social media at their peril. The chapter-opening case provides examples of the evolving nature of the business-customer relationship, particularly in today's social media arena. As personal technology usage changes, so too must the methods that businesses use to interface with their customers. Organizations increasingly are emphasizing a customer-centric approach to their business practices because they know that sustainable value is found in long-term customer relationships that extend beyond any given day's business transaction.

Customer Churn

A process in which over time all organizations inevitably lose a certain percentage of customers

Inbound Teleservice

Customers can communicate directly with the CIC to initiate a sales order, inquire about products and services before placing an order, and obtain information about a transaction that they have already made

Outbound Telesales

Organizations also use the CIC to create a call list for the sales team, whose members con- tact sales prospects. In these interactions, the customer and the sales team collaborate in discussing products and services that can satisfy customers' needs and generate sales.

Inventory Velocity

The speed at which a company can deliver products and services after receiving the materials required to make them.

360-Degree View

a complete data set on each customer.

Customer-Facing CRM Applications

an organization's sales, field service, and customer interaction center representatives interact directly with customers. These applications include customer service and support, sales force automation, marketing, and campaign management.

Front-Office Processes

are those that directly interact with customers; that is, sales, marketing, and service.

Procurement Portals

automate the business processes involved in purchasing or procuring products between a single buyer and multiple suppliers. For example, Boeing has deployed a procurement portal called the Boeing Supplier Portal through which it conducts business with its suppliers.

Distribution Portals

automate the business processes involved in selling or distributing products from a single supplier to multiple buyers.

Information Flows

consist of data related to demand, shipments, orders, returns, and schedules, as well as changes in any of these data.

Campaign Management Applications

help organizations plan campaigns that send the right messages to the right people through the right channels. Organizations manage their customers very carefully to avoid targeting people who have opted out of receiving marketing communications. Further, companies use these applications to personalize individual messages for each particular customer.

Interorganizational Information System (IOS),

information flows among two or more organizations.

Financial Flows

involve money transfers, payments, credit card information and authorization, payment schedules, e-payments, and credit-related data.

Vertical Integration

is a business strategy in which a company purchases its upstream suppliers to ensure that its essential supplies are available as soon as they are needed.