Customer Relationship Management
Customer Relationship Management (CRM) is one of the most important marketing developments in a long time. This process, that combines database technology and other technology with advanced and targeted marketing tools, is having a huge impact on retailers that have implemented it. CRM is the linking of fundamental marketing principles with advances in database technology to take customer retention to the next level. Databases allow companies to collect and analyze customer information in ways that were never previously possible. Using some type of point of sale tool, such as reward card programs or POS account profiling, companies can gather basic contact information on its customers and then track their purchases, spending habits and general buyer behavior. Companies have long attempted to collect and analyze customer data. The difference with advanced database technology is that companies can gather many more types of data, and more complex data, as databases allow for great depth of storage. More importantly, through search and query reports, retailers can analyze customers on a large variety of criteria. They can search for customers that provide greater revenue, are likely to buy certain types of products, or are price conscious. Additionally, many retailers are able to more fully define and describe their market segments by analyzing similar purchasing characteristics of those within an identified demographic segment. Perhaps the biggest benefit of effective CRM programs is that companies can identify who their top customers are and place their customers into various marketing tiers. Following a well known time and resource management principle, the Pareto Principle, retailers have begun to utilize advertising dollars, and time, more efficiently. The Pareto Principle, or 80-20 rule, as it applies to business, suggests that around 80 percent of a retailer’s revenue is generated from the top 20 percent of its customers. While this rule is a generalization, it has proven to be fairly indicative of how the business environment functions. Essentially, a relatively small collection of a businesses total customer base provides for a large percentage of its revenue. Understanding this basic business fundamental, good retailers have adopted the mentality “You can’t be all things to all people.” They have target their top customers with directed, long-term relationship oriented, marketing programs. This not only helps to maintain strong customer relationships, but it also tends to enhance and even grow the amount of business gained from key customers. Retailers can’t forget their other customers. A second tier of customers (21-40%) has been targeted for increased business and long-term relationships. This group is being pushed and encouraged, again through targeted advertising and promotions, to move up in their revenue production. This constant encouragement of business growth from these top tiers has helped stimulate overall sales growth and longer customer relationships for a number of companies. Retailers have also used CRM to better understand the need to reduce wasted resources and costs used to maintain underperforming customer relationships. Many times, customers that are very price conscious, while also demanding of customer service and other retailer resources, can actually cost a retailer profits through their buying habits. Retailers, while not wanting to offend this group, also are trying to avoid supporting customers in this group. Many retailers are offering tiered service levels or VIP types of service functions to their top customers. Ultimately, by recognizing that not all customer relationships are equal, companies can better maximize advertising dollars. This has not only saved money, but has also created greater return on investment through more targeted advertising and promotions to key customers. This is good business sense.
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