Segmentation: In this article, we are covering the sixth part of Customer Relationship Management Complete Notes which is important for different competitive exams like Business and Marketing Exams, Management and Leadership Exams, Information Technology Exams, Sales and Customer Service Certification Exams, MBA Entrance Exams, Industry-Specific Exams etc.
Table of Contents
Notes on Segmentation or Trends in CRM or e-CRM
This is the sixth part of CRM Notes – Segmentation or Trends in CRM or e-CRM where we are going to cover Requirements for Effective Segmentation, Bases for Segmentation, Geographic Segmentation, Demographic Segmentation, Psychographic Segmentation, Introduction of CRM, e-Commerce, CRM vs. e-CRM, Challenges in e-CRM, Features of Effective e-CRM, Designing e-CRM, Basic Requirements of e-CRM, and ERP & CRM.
Requirements for Effective Segmentation
Five conditions must exist for segmentation to be meaningful:
- A marketer must determine whether the market is heterogeneous. If the consumers’ product needs are homogeneous, then it is senseless to segment the market.
- There must be some logical basis to identify and divide the population in relatively distinct homogeneous groups, having common needs or characteristics and who will respond to a marketing programme.
- The total market should be divided in such a manner that comparison of estimated sales potential, costs and profits of each segment can be estimated.
- One or more segments must have enough profit potential that would justify developing and maintaining a marketing programme.
- It must be possible to reach the target segment effectively. For instance, in some rural areas in India, there are no media that can be used to reach the targeted groups. It is also possible that paucity of funds prohibits the development required for a promotional campaign.
As more and more identifying characteristics are included in segmenting the market, the more precisely defined are the segments. However, the more divided a market becomes, the fewer the consumers are in each segment. So, at least in theory, each consumer can be considered as a separate segment. An important decision for the marketer is how far to go in the segmenting process.
A market niche is composed of a more narrowly defined group of consumers who have a distinct and somewhat complex set of needs. A niche market is smaller in size but may prove to be quite profitable if served properly. Consumers in a niche are ready to pay a premium to the marketer who best satisfies their needs.
Bases for Segmentation
Selecting the right segmentation variable is critical. For example, small car producers might segment the market on the basis of income but they probably would not segment it on the basis of political beliefs or religion because they do not normally influence consumers’ automobile needs. Segmentation variable must also be measurable to segment the market accurately.
Marketers can use one or more variables to segment the market. Different variables are used to segment consumer markets. They are discussed in following subsections.
Geographic location of consumers is usually the starting point of all market segmentation strategy. The location of consumers does help the company in planning its marketing offer. These geographic units may be nations, states, regions, areas of certain climatic conditions, urban and rural divide. The assumption is that consumers in a particular geographic area have identical preferences and consumption behaviour.
Demographic characteristics are commonly used to segment the market. Factors such as age, sex, education, income, marital status, family size and social class etc. are used singly, or in a combination, to segment a market. Shaving products for women are based on the demographic variable of gender. Toy manufacturers such as Funskool and Mattel toys segment the market on the basis of age of children. Auto manufacturers segment the market by considering income as an important variable. Producers of refrigerators, washing machines, microwave ovens etc. take income and family size as important variables in segmenting the market. Ready-to-wear garment producers often segment the market on the basis of social class.
When the segmentation is based on personality or lifestyle characteristics, it is called psychographic segmentation. Consumers have a certain self-image and this describes their personality. There are people who are ambitious, confident, aggressive, impulsive, modern, conservative, gregarious, loners, extrovert, or introvert etc.
Introduction of CRM
CRM is, probably, one of the least clearly defined business acronyms, as there is no single definition for it. It is probably easier to say what CRM is not. Unfortunately, CRM has also become a misnomer for a range of solutions from vendors, each providing its own spin on the idea. CRM is variously misunderstood as a fancy sales strategy. It is none of these. CRM is a simple philosophy that places the customer at the heart of a business organizations processes, activities and culture to improve his satisfaction of service and, in turn, maximize the profits for the organization.
A successful CRM strategy aims at understanding the needs of the customer and integrating them with the organization’s strategy, people, and technology and business process. Therefore, one of the best ways of launching a CRM initiative is to start with what the organization is doing now and working out what should be done to improve its interface with its customers. Then while this may sound quite straightforward, for large organizations it can be a mammoth task unless a gradual step-by-step process is adopted.
It does not happen simply by buying the software and installing it. For CRM to be truly effective, it requires a well-thought-out initiative involving strategy, people, technology, and processes. Above all, it requires the realization that the CRM philosophy of doing business should be adopted incrementally with an iterative approach to learn at every stage of development.
Emerging Trends in CRM
It is not suddenly that the business managers have realized that the customer is supreme or the need to render personalized service. However, it was not possible to address the preferences of a massive group of widely dispersed individuals. Neither the tools nor the technology was available. The smart business managers did the next best thing, which was to conduct a market research and classify the market into broad segments with different preferences. The product managers would (and still do) then position their products catering broadly to these segments.
The information systems have evolved tremendously over the last three decades and so have the communication systems. While ERP, the management mantra of the nineties, offered the means to optimize resource planning at the enterprise level encompassing every area of the enterprise on a real time basis, there was still no means of connecting to the customer. The customer had just too many locations.
The commercial penetration of Internet into the homes changed everything. It provided the means to take the integrated enterprise information system to the customer’s living room. He could buy, sell or bank sitting there, while uniquely identifying himself. This has led to the evolution of CRM, which uses the Net to integrate the customer contact points directly with the enterprise. It provides the means to interact with every customer individually (thereby interacting with million or even billions of customers). The interactions over a period of time create a history that is available to the field sales/support personnel at the touch of a button.
Current Trends in CRM
As CRM matures, distinct trends are emerging.
- Hosted Solution: Enterprises are increasingly showing an interest in buying a hosted solution from the ASPs. This trend is likely to increase as the enterprises would prefer to concentrate on their core businesses and let the ASPs provide updated solutions.
- Integrated Solution: There is an increasing trend to integrate the CRM activities with the supply chain, manufacturing and B2B market-places. This trend is likely to increase.
- Evolution of marketing and branding services: Internet marketing and branding is a different paradigm with a different set of rules. With the convergence of marketing and CRM, professionals providing specialized services are fast emerging.
- Data Warehouses: Even as enterprises rush to warehouse their own data captured at interaction points, data has become a commodity. It can be bought, sold, shared and leased. There are companies whose only business is trading in data transactions.
CRM in India
Software is to India what oil was to the Gulf. It is therefore no surprise that Indian companies, too, are jumping into the CRM bandwagon to seize a chunk of the global market, both products as well as services.
With its vast talent pool, India is fast becoming an important development base of major CRM companies. This trend is likely to increase in the future. Call centers, catering primarily to the American and European markets are coming up in and around the metros. With the easing of infrastructure constraints, India is likely to emerge as a significant player in this segment.
Adoption of CRM by Indian companies is at an infancy stage. The CRM enabled companies include Modi Xerox, Tata Telecom, TVS Electronics, HP India, Tata Infotech, Carrier Refrigeration, Tata Teleservices, Satyam Infoway, Planet M, and Epicentre Technologies, among many others. India even has a CRM Foundation in New Delhi, founded with the purpose of assessing and improving CRM practices. Founding members include Tata Telecom, Escotel, Modi Xerox, Global Groupware, AC Nielsen, Carrier Aircon, and Motorola India, among others.
Electronic Commerce (e-Commerce or EC) is the exchange of business information using electronic formats, including Electronic Data Interchange (EDI) Electronic Mail (e-mail), Electronic Bulletin Boards (EBBs) and Electronic Funds Transfer (EFT). E-Commerce Technologies are designed to replace traditional paper-based workflow with faster, more efficient and reliable communications between computers. To conduct business in the current environment using e-Commerce technologies requires that a business have access to a computer and a modem.
E-Commerce is What Happens
When one combines the broad reach of the Internet with the vast resources of traditional information technology systems. It uses the Web to bring together customers, vendors, and suppliers in ways never before possible; e-commerce is here and presents abundant opportunities. Companies around the world already buy and sell over the Internet.
They connect with customers, suppliers and each other. They do business on the WEB, and consequently, they do more business. There are challenges like security, scalability and reliability. They are real, but they are surmountable. E-Commerce is about web enabling the core business processes to improve customer service, reduce cycle time, get more results from limited resources, and actually sell things. In its simplest terms electronic commerce is the process of two or more parties making business transactions via computer and some type of network e.g. a direct connection or the Internet.
This includes business-to-business transactions, online retail, and the digitalization of the financial industry. Some experts and leading Net Entrepreneurs even argue that electronic commerce includes all the steps that occur in any business cycle, such as placing ads, completing invoices, and providing customer support. The term “e-Commerce”, often used interchangeably with IBM’s coined term “e-Business,” covers a lot of ground and refers to all these areas.
Introduction of e-CRM
E-Commerce actually began in the 1970s when larger corporations started creating private networks to share information with business partners and suppliers. This process, called Electronic Data Interchange (EDI), transmitted standardized data that streamlined the procurement process between businesses, so that paperwork and human intervention were nearly eliminated.
EDI is still in place, and is so effective at reducing costs and improving efficiency that an estimated 95 percent of Fortune 1,000 companies use it.
Today, electronic commerce increasingly refers to business conducted over the Internet. EDI, for example, is being brought to the Internet and allowing companies to save money by eliminating the old system’s expensive private networks and by expanding reach to include more businesses on the supply chain. Other business-to-business transactions are simply moving to the web without using the standardized forms required by EDI.
More recently, brand names like Barnes and Noble, the Gap, and Wal-Mart and Indian companies like BPB publications and Rediff on the net have set up shops on the Net, and many experts believe that these and other brand names will be able to establish long-lasting presence on the Web. Today, all a person needs are a computer, a browser, and Internet access, and he or she can buy flowers, airline tickets, and even a car.
Definition of e-CRM
e-CRM is the application of CRM to an e-business ‘strategy. It includes the personalization and customization of customers ‘experiences and interactions with the e-business.
CRM is a fundamental facet of an organization, encompassing the philosophy and mission of organized business that is engaged with a well-knit customer-focused knowledge base and pervasive communications. It is more than software or process, and equal to a culture of gaining and keeping value customers, delivering the immitigable benefits. E-CRM can contribute incontrovertibly to an organizational transformation into a real time enterprise for customers, while harnessing the power of technology in a rapidly changing competitive landscape.
The major benefits that accrue are new sales and account opportunities, quicker, smarter decision-making, and better efficiencies leading to significant improvement in customer service.
Benefits of e-CRM
- Extended customer relationships,
- Competitive services delivering high value,
- Improved product and service delivery processes,
- Better customer knowledge and insight, and
- Smooth, efficient customer service.
E-CRM is operational by integrating sales, marketing and customer service functions, allowing for internal collaboration on valuable customer knowledge and empowering to connect to customers and partners through any process, functional system and communication medium telephone, fax, e-mail, internet and mobile.
To take the best decision possible, engage the entire top management, and evolve an informed and dynamic project group (relevant functional leaders) to deliver a reasonable business case with clearly identified roles, responsibilities and diligence perspectives, with lucid time lines.
Scope of e-CRM
- Sales: Supports key functions such as contact management, opportunity management, forecasting and 360-degrtee view of all customer accounts and interactions. Automate and organize sales force activities for focused selling and closing.
- Marketing: Detailed schedules and tasks, maintaining contact lists and activity logs, automation association with leads, accounts or contacts, managing product and resource information, marketing alerts, etc.
- Channel Management: Supporting key functions as campaign management and analysis, and customer demographic analysis.
- Customer Service: Provides an efficient workflow and easy access to information while synchronizing customer data across all communication channels.
- Partner Management: Tracks and analyses sales made by partners and track contacts associated with dealers, distributors and other channel partners.
- E-Business: Creation and customization of customer centric web pages, enabling customers to generate and track support requests from the company’s website.
CRM vs. e-CRM
- E-CRM is not just customer service, self-service web applications, sales force automation tools or the analysis of customers’ purchasing behaviours on the internet.
- E-CRM is all of these initiatives working together to enable an organization to more effectively respond to its customers’ needs and to market to them on a one-to-one basis.
- E-CRM is integration between the traditional CRM and e-Business application. This small ‘e’ should be a gigantic ‘E’ because this technology, when properly used, can have a significant impact on industries and the structure of businesses. Essentially, the ‘e’ enables an organization to extend its infrastructure to customers and partners in ways that offer new opportunities to learn customer needs, add value, gain new economies, reach new customers, and do all of this in real time.
- E-CRM is all about strategy and therefore requires the direction and engagement of senior management to be successful. Senior management must have a broad understanding of the capabilities of these technologies and then translate them into specific opportunities that leverage competitive advantage.
- E-CRM is different from traditional concept of customer service. For example, the traditional customer service concept works as follows:
- Customer has a problem with a product or service late in the evening.
- Customer has to wait till company offices open the next day. He is upset because he cannot resolve the problem immediately.
- Next day when he contacts the company, the Customer Service Representative assists the customer in resolving the complaint. Sometimes resolution of complaint can take days, as the Customer Service Representative may not have the desired information or necessary technical skills to resolve the problem. Customer is not happy.
- On the other hand, e-CRM is proactive and provides easily accessible data for real time decision-making. e-CRM would tackle the above situation as follows: Customer has a problem with a product or service late in the evening.
- Customer does not have to wait till morning to have his problem resolved. He visits company’s website for assistance and checks the Frequently Asked Questions (FAQs). He is able to resolve his problem. Customer is happy.
- In case, he is not able to resolve his problem, the customer clicks the “Help Now” button and a Customer Support Representative.
- The Customer Support Rep accesses the knowledge base and conveys the desired information to the customer to resolve his problem. Customer is happy.
- The details of the interaction are recorded in the customer history, so it is available to any Customer Service Rep who has any interaction with the customer in future.
- Knowledge base is updated with relevant information from this interaction.
An email is automatically sent on behalf of the President of the company to the customer asking him if he was satisfied with the resolution of the problem. Determining what types of e-CRM tools to implement depends on how a company anticipates customers’ needs. For example, a customer purchased something from the Web site and needs to know how to return merchandise, will it be necessary to offer a customer service representative to answer the question? Or with the use of the latest e-CRM technology to provide the customer with an instant answer and save on the cost of having a person answers a simple question?
Automatic response technology is an example of an e-CRM tool that helps effectively and efficiently communicates with customers and builds close relationships with them. By doing so, a company gains customer loyalty.
To ensure that the website is customer’s preferred place a business must provide effective customer service.
Knowledge of Warehousing: Capturing customer information is the key to managing customer relationship. Software that can consolidate customer information into a single database would provide your business with important analysis for customer tracking and analysis.
Data Resourcing: Using data from multiple resources, including customer information databases, e-CRM focuses on building a real time customer profile for each customer. Your customer agents can target market selective based on what it knows about a particular customer.
Categorizing or Segmenting Customers: Customer information collected in databases is presented in formats that can be easily analyzed. Reports track customer service issues and assist in e-marketing campaigns. Your company can use data gathered by these tools to segment your customer base into several groups or categories.
- Self-hosted Applications: The software is hosted by the e-business. The vendor will teach users how to put the software to use.
- Downside: it costs more, you have to maintain the applications yourself and implementation time is usually longer.
- Upside: you have absolute control and customization power.
- Application Service Provider (ASP): The vendor will host the software and system.
- Upside: You don’t have to do much implementation and don’t have to know how to use the system and deployment is faster.
- Downside: changes and customization are more difficult to make, reporting capabilities are limited and there is the perception that there’s less security.
- Outsourced Model: Similar to the ASP option. A company with limited resources and capabilities will utilize outside businesses to fill in the gap.
- Upside: you don’t have to hire additional employees and commit to complicated and expensive applications.
- Downside: less control.
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Challenges in e-CRM
- Security: A sense of security needs to be established and customers must be able to select a mode of payment and the software must verify their ability to pay. This can involve credit cards, electronic cash or purchase orders. Specialized software such as cyber cash and Microsoft-wallet can verify the purchaser and the purchase. E-CRM software usually works with the Secure Sockets Layer (SSL) developed by Netscape or the Secure Electronic Transaction (SET) technologies for encryption of data transmission. The more support by an e-commerce package, the better for the security.
- Digital Certification: The method used to establish identity is based upon an object called digital certificate. A digital certificate simply ties together a public key with say the name and address of the customer or merchant. The trick is that these certificates are signed by a trusted third party, in much the same way that the passport is signed by the government that issues it. Verisign, a spin off from RSA data security is in the business of issuing these certificates which they called Digital IDs. Currently these are digital IDs are not recognized by the Indian government.
- Future Trends in e-CRM: The forces that determine the web’s winners and losers are just taking shape and technological advances could add even more uncertainty. On the downside, some experts predict that it will be increasingly difficult for smaller companies to establish their presence. Public companies and traditional brand name retailers have deep pockets and a name recognition that will make it difficult for smaller sites and momand-pop shops to attract customers, thereby forcing them to compete with the big firms. On the upside, nearly all experts believe that overall e-commerce will increase exponentially in coming years. Business to business transactions will represent the largest revenue. Online retailing will also enjoy a drastic growth. Areas expected to go include financial services, travel, entertainment and groceries. And for those considering opening a virtual storefront, forthcoming technology and standards agreements will make it easier to create a site, to protect it against payment fraud, and to share information with suppliers and business partners.
Features of Effective e-CRM
Any e-CRM is the customer-facing Internet portion of CRM. It includes capabilities like self-service knowledge bases, automated e-mail response, personalization of Web content, online product bundling and pricing, and so on. The web-based e-CRM gives Internet users the ability to carry on with the business through their preferred communication channels. It also allows the business to offset expensive customer service agents to add value to its ability to improve customer satisfaction and reduce costs through improved efficiency.
However, an e-CRM strategy deployed alone can also backfire and this actually may result in decreased customer satisfaction. If the customer’s interactions through electronic channels are not effortlessly integrated through traditional channels the customer is likely to become extremely frustrated. Also, if the basis for the content being served to the customer does not consider all the data gathered for the business, the customer is likely to be served in that way.
Therefore, it is imperative that e-CRM be installed in conjunction with traditional CRM and that the two function together. Otherwise, the result of e-CRM might actually prove negative.
Some CRM companies have Web-enabled their existing application and called it “Internet ready”. Others have redesigned it from the bottom so that it is referred to as a Web application, rather than a client/server application that can be viewed on the Web. These are the fundamental architectural differences. Mere accessibility from a browser does not turn a CRM application into e-CRM. For technology to fulfill the promise of making the desired customer activity possible, the invisible technical details really matter.
Basic Requirements of e-CRM
A company can approach e-CRM from different evolutionary paths, but they all need to proceed toward the same objective of optimizing the value of customer relationships.
Electronic Channels: New electronic channels such as the Web and personalized e-Messaging have become the medium for fast, interactive and economic customer communications, challenging companies to keep pace with this increased velocity.
Enterprise: Through e-CRM, a company gains the means to touch and shape a customer’s experience across the entire organization, reaching beyond just the bounds of marketing to sales, services, and corner offices – whose occupants need to understand and assess customer behavior. An e-CRM strategy relies heavily on the construction and maintenance of as data warehouse that provides a consolidated, detailed view of individual customer behavior and communication history.
Empowerment: In this new age, e-CRM strategies must be structured to accommodate consumers who now have the power to decide when and how to communicate with the company and through which channel, which ability to opt for or out of. Consumers decide which firms earn the privilege to “talk” with them. In light of this new consumer empowerment, an e-CRM solution must be structured to deliver timely, pertinent, and valuable information that a consumer accepts in exchange for his or her attention.
Economics: Too many companies execute communication strategies with little-effort or ability to understand the economics of customer relationships and channel delivery choices. Yet customer economics drives smart asset allocation decisions, directing resources and efforts of individuals shall provide the greatest return on customer communication initiatives.
Assessment: Understanding customer economics relies on a company’s ability to attribute customer behavior to marketing programs. A company should evaluate customer interactions along with various customer touch-point-channels and compare anticipated ROI against actual returns, through customer analytical reporting. Evaluation of results allows companies to continuously refine and improve efforts to optimize relationships between companies and their customers.
Outside Information: The use of consumer-sectioned external information can be employed to further understand customer needs. This information can be gained from sources such as third-party information networks and Web-page profiler applications, under the condition that companies adhere to strict consumer opt-in rules and privacy concerns.
ERP and CRM
ERP implementation is an expensive and long drawn affair that requires the best efforts of the most competent team drawn from the middle and senior management of the company. Typical team size is 60 to 70 from within the company and an equal number from the implementation partner. Substantial time of top management is also a pre-requisite to ensure that quick decisions are given for any bottleneck that may arise.
- The typical time period for implementation is 24 to 30 months. This can be crashed to some extend but not beyond a point.
- The cost of software and the implementation partners’ fee together can be in the region of 50 to 70 crores. This is after excluding the cost of other resources such as new hardware, additional office space, etc.
- Why are we talking of ERP on a seminar on CRM. Because we feel that CRM cannot be effective in a company that does not have a back-office information setup.
- Modern day ERP offerings have many features that closely resemble the best of CRM software.
ERP (Enterprise Resource Planning) attempts to bridge the gap between the SCM and CRM packages by providing a “unified software program divided into software modules that roughly approximate the old standalone systems” (Koch, 2006). The main focus of ERP systems is data sharing, data distribution, and data quality in order to avoid duplicate and redundant. Kock states that the main goals for an organization to undertake ERP:
- Integrate financial information,
- Integrate customer order information,
- Standardize and speed up manufacturing processes,
- Reduce inventory, and
- Standardize HR information (Koch, 2006).
When it comes to ERP systems, they can provide many benefits and paybacks for an organization that chooses to implement the system and does so effectively. An ERP system should be carefully planning, analyzed, and designed prior to implementation, followed by training and maintenance. This can be a huge task to undertake for any organization. I think that the differences in these systems are due to the lack of ability to truly fulfill an organization’s complex needs and business processes across the various departments and functions.
These systems encompass the main enterprise-wide information systems. These systems feed into the decision support systems such as data mining and OLAP using data warehouses, marts, etc. There are additional systems that are more focused on specific business objectives. Some of these systems include, but is definitely not limited to:
- Decision Support Systems,
- Sales Force Management Systems,
- Executive Information Systems,
- Strategic Information Systems, and
- Group Support Systems.
FAQs on Segmentation or Trends in CRM or e-CRM
What is e-CRM?
e-CRM or Electronic CRM concept is derived from E-commerce. It also uses net environment i.e., intranet, extranet and internet. Electronic CRM concerns all forms of managing relationships with customers making use of Information Technology (IT). E-CRM is enterprises using IT to integrate internal organization resources and external marketing strategies to understand and fulfill their customers’ needs. Comparing with traditional CRM, the integrated information for eCRM intra-organizational collaboration can be more efficient to communicate with customers.
What are the different levels of e-CRM?
Different levels of e-CRM
In defining the scope of e-CRM, three different levels can be distinguished:
Foundational services: This includes the minimum necessary services such as web site effectiveness and responsiveness as well as order fulfillment.
Customer-centered services: These services include order tracking, product configuration and customization as well as security/trust.
Value-added services: These are extra services such as online auctions and online training and education.
What are the advantages of data mining?
Data mining is seen as an increasingly important tool by modern business to transform data into business intelligence giving an informational advantage. It is currently used in a wide range of profiling practices, such as marketing, surveillance, fraud detection, and scientific discovery.
The related terms data dredging, data fishing and data snooping refer to the use of data mining techniques to sample portions of the larger population data set that are (or may be) too small for reliable statistical inferences to be made about the validity of any patterns discovered. These techniques can, however, be used in the creation of new hypotheses to test against the larger data populations.
How SAP support to CRM?
SAP CRM supports the customer-related processes and deals with all customer-related activities across all departments. It sources and gathers together all customer data in the organization in order to facilitate better decisions. It enables company’s address their business needs adequately, manages to achieve the business objectives and reaps the required return on investment.
What are the advantages of SAP used in CRM?
SAP, which is more commonly known as a vendor of enterprise resource planning (ERP) software, offers a very popular CRM package. SAP’s CRM product is often purchased by companies who are already SAP customers because of the ease of integration of customer data in a structured format. Based on the requirement of company, they can retrieve the data on basis of their requirement.