CRM Value Chain

The CRM value chain is a proven model which businesses can follow when developing and implementing their CRM strategies. The ultimate purpose of the CRM value chain process is to ensure that the company builds long-term mutually-beneficial relationships with its strategically-significant customers “SSC”.

What is a strategically significant customer “SSC”?

• Self Evidently:The high life-time value customer is a key SSC. These must be the focus of the customer retention efforts. Life-time value potential is the present day value for all future margins that might be earned in a relationship. Not all high volume customers have long time Value if they are costly to serve, their value may be significantly reduced.
• Benchmarks:These are the customers that other customers copy.
• Inspections:Customers who inspire change in the supplying company. These may be customers who find new applications, come up with new product ideas, and find ways of improving quality or reducing cost. They may be the most demanding of customers, or frequent complainers, and, through their own long time value potential is low.
• Cost magnets:There are customers who absorb a disproportionately high volume of fixed cost, thus enabling other, smaller customers to become profitable.

Five Steps to profitable relationships

Although we don’t discuss them here, at each stage of the value chain there are concepts, tools and processes to help create and implement successful strategy.

1. The CPA step Analyses the customer base to identify customers to target with different value propositions.
2. It involves the business in getting to know the selected customers as segments or individuals and building a customer data-base which accessible to all those decisions or activities impact upon customer attitude and behavior.
3. It involves in building a strong network of relationships with employees, suppliers, partners and investors, who understand the requirements of the chosen customers.
4. Involves in developing, with the network’s compliance, propositions which create value jointly for the customer and company.
5. Managing the customer relationship.

Customer Portfolio Analysis

CRM value chain acknowledges that not all customers have equal value to the company. Companies which have no customer history on which to base their analysis can use segmentations approaches to identify potential SSCs, An important consideration is to analyze and sort by profit potential, not by volume, whether that is by sector, segment or individual.

One CPA Tool sorts customers into 4 strategic groups:

• Sack able customers are those who have no present or future profit potential or life-time value.
• The invest group contains customers who are both valuable currently and have significant future potential.
• The re-engineer group contains customers who are not presently profitable but who could become so if the relationship were re-engineered.
• Nature group contains those customers who are currently profitable but have little future potential.

Customer Intimacy

• Choosing customer to serve is one thing, getting to know them well is different.
• Most companies collect data.
• The challenge is to use the data to better understand the who, what, why, where, when, and how of customer behaviour.

Develop the Network

Company does not compete against company. Network competes against network. For Example, Sainsbury does not compete against TESCO. Their respective network competes. TESCO’s network, which include partners such as Royal Bank of Scotland (for its retail banking offer) and privilege insurance (for its insurance offer).
A company network position:
Its connectedness to other parties who co-operate in delivering value to the chosen customer; is a source of competitive advantage, For example software house partnering with IBM, the soft ware house will enhance its network position. IBM also benefits, as well as their joint customers.
What are the members of the network?
For CRM to succeed, the network of suppliers, employees, owners/investors, and partners must be aligned and managed to meet the needs of the chosen customer.
Employees will probably need reorienting and re-skilling, if not redeployment.

• Suppliers also need to understand who the customer is trying to serve.
• Owners and investors who will commit to the long-term investment in the people, processes and technology to implement CRM Strategies.

Value proposition development

Although it is traditional to focus on the product as the main source of value, many companies are finding that people, process and service offer more competitive advantage as products become more commoditized.
There may be small process such as how companies are handled; and big process such as how new products are jointly developed with customers. The value stars illustrate sources of customer value in a retailing context.
THE Value star consists of:

• Communication
• People
• Process
• Produce/brand
• Price
• Service
• Location
• Service scope

Managing the relationship

For relationship to succeed with strategically significant customers:
Customers have to re-invent structures and process.
On the way out are hierarchical structures and product mangers. Replacing them is flatter organization with empowered front-lines and customer or market managers.
We encourage companies to replace their single marketing strategy with a trio made up of a customer acquisition plan, customer retention plan and customer development plan. Each of these has metrics from those found in run-of-the-mill marketing strategies.
New Measures.
Include customer acquisition cost, customer retention rates, share-of-customer and customer development targets alongside more conventional measures such as customer satisfaction and sales volume, and addition measures relating to the performance of network members.