Customer Relationship Management (CRM) is a strategic approach that influences all interactions between companies and customers.
With this approach, companies decide on a strong orientation towards existing customers and the retention of these.
Especially in Software-as-a-Service (SaaS) areas a focus on CRM is not uncommon. Other examples would be financial service providers or telecommunications companies.
Perhaps you have already threatened to terminate your mobile phone contract and then suddenly received a new, cheaper offer? A classic CRM example.
Even in the B2B sector, which usually stands for relatively high acquisition costs, the value of customer loyalty measures is particularly high.
Customer Relationship Management (CRM) comprises all measures for maintaining customer relationships from acquisition to retention. The term is often used in connection with e-marketing or e-mail communications.
Why Customer Relationship Management?
Why? The calculation is easy: winning new customers can be up to 5 times more expensive than retaining existing ones. No wonder then.
So the goal of Customer Relationship Management is to maintain relationships with new and existing customers. The interactions here should generally feel as personal as possible and be tailored to the customer’s particular situation. In practice, automation also plays a major role in this.
With technologies such as e-mail and social networks, it is easier than ever to maintain long-term customer relationships. Not only companies, but also customers find it easier to get in touch.
These shorter processes lead to greater customer loyalty and customer satisfaction. Happy customers shop again. For some companies, customer orientation is THE unique selling point par excellence. However, a close relationship with the user should be part of every company’s orientation.
Key Performance Indicators in CRM
- Conversion Rate
- Customer Acquisition Cost: How much does it cost to acquire a new user?
- Customer Lifetime Value (see next chapter)
- Response Time: How long does it take to respond to customer questions?
- Retention Rate/Churn Rate
- Success rate for retention measures
What is the Customer Lifetime Value?
The Customer Lifetime Value expresses the value of a customer relationship in numbers. For this purpose, possible revenues from a customer are summarized over an observation period (“lifetime”). These could be, for example, subscription costs or expected expenses. They are offset by the costs that a company incurs to maintain the relationship over the same period. From this, a profit is calculated, which is discounted over the period under consideration.
In this way, each customer is assigned a theoretical value that they have for a company. This serves as a basis for further decisions.
Example: A customer wants to close his bank account. A high CLV justifies stronger commitment measures, such as more favorable conditions. Basically, a Customer Lifetime Value > 0 is positive because the customer relationship is profitable on balance.
The calculation of the CLV can become complex: Other factors that could flow into the CLV are, for example, recommendation potential or cross-selling potential.
The CLV is becoming increasingly important, particularly as a result of digitalization. The music we listen to, the films we watch – subscription contracts are now more the rule than the exception. Especially here it is important not to look at the acquisition costs of customers in isolation. If a certain user group can be acquired cheaply, but is usually not willing to pay for a service, then this should definitely influence your decisions.
The Customer Lifetime Value (CLV) translates the value of a customer relationship into numbers. It helps you take a long-term view of relationships and prioritize appropriate retention measures.
Example 1: Sephora
Sephora is an online shop for makeup and other care products.
In addition, the brand operates an online community where customers can exchange ideas. Users create their profile on the website and exchange tips & tricks with each other. Here, companies and customers not only exchange information directly via the employees (social CRM), the platform also has another advantage:
The company uses the information, which is especially taken from the profile, for targeted offers.
Sephora also operates a customer loyalty program: customers who spend a certain amount of money receive certain offers and discounts. Such loyalty programs are also popular examples of customer relationship management.
Example 2: Tripadvisor
Tripadvisor is a great example of successful e-mail marketing.
Almost every day the company sends out its newsletters – without being perceived as spam. Comparison: Many other companies send e-mails only 1-2 times a week (or even less). So why is the information Tripadvisor sends so much more valuable than that of other companies?
Three factors are decisive here:
- The emails are extremely varied, ranging from more generic travel options and price notifications to requests to write reviews and ultimately personal statistics on published reviews. This means that there is no fatigue and customers are served with valuable content even in the long term.
- In addition, the e-mails are highly personalized in terms of content and thus particularly relevant for customers. The address uses information such as place of residence, past travel destinations, in-app and on-page behavior. Thus, the company creates a strong relevance for the reader in every communication.
- Last but not least, Tripadvisor manages to ensure regular engagement despite all the diversity. Every communication contains a call-to-action, no matter how small it is. Through small interactions, the relationship between customers and companies is strengthened.
Example 3: Amazon
Amazon also owes its status as the world’s largest e-commerce platform to its sophisticated CRM system. In the personal account Amazon records the past purchases of each customer – and thus learns more about their preferences.
Does he buy Xbox games? Then he probably has an Xbox. So he is probably interested in the topic of gaming in general. What kind of games are he interested in?
Thanks to the amount of information available, the online shop can understand its customers better than most. This gives him the opportunity to play out appropriate marketing campaigns via different channels such as email and display.
Also the possibility to subscribe to products for a longer period of time or to buy them per 1-Click are measures to bind customers to the company in the long run.
A final example can be found throughout the Amazon ecosystem. With one login, customers access video streaming, music streaming, online shopping and other services. This is not only useful for consumers but also a valuable way to consolidate information across channels.
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What does a CRM system contain?
With an increasing number of customers the mass of data grows. Contact addresses have to be stored, appointments have to be organized, the current status of offers has to be recorded. If you want to keep an eye on the development of customer contact, customer behaviour and customer care in the medium term, there is no way around CRM software.
Systematic management of information is indispensable, particularly in order to tailor communication as precisely as possible to each individual customer and the status of the relationship. So first of all: Yes, there are now suitable CRM tools available for small companies as well.
In addition to basic requirements such as simple usability and an attractive user interface (incl. mobile CRM), good systems fulfill several functions:
- E-mail marketing incl. templates & analyses (analytical CRM)
- Live Chat & Chatbots (also via social media – social CRM)
- Onpage forms
- Lead management
- Tracking of interested parties, organization of meetings
- Live chat
- Deal management
- Company Insights
Customer Service and Operations Features:
- Ticketing (operational CRM)
- Live Chat & Chatbots
- Time-to-close reporting
- Integration of 3rd party tools
- Cooperation between all teams (collaborative CRM)
- Dashboard and comprehensive reporting
Examples for CRM systems
There are several tool providers for modern relationship management. Some of these are primarily for small businesses – and others are clearly aimed at sales and marketing teams in large companies with more than 1,000 employees.
Digitalisation and new technologies have a strong influence on the relationship between companies and customers or CRM. In concrete terms, a number of trends are emerging here in 2020.
- Social Listening: Information on customer opinions and trends is taken from social platforms. Example: Facebook comments on a product announcement
- Customer loyalty: Companies and customers are in a direct and informal dialogue. Customers thus receive faster help in case of problems. In addition, both parties also interact outside of the pure purchasing process. Regular visibility improves the subjective assessment of the company (Mere Exposure Effect). Direct dialogue increases this effect.
Customer relations are also becoming increasingly automated thanks to new technologies.
Examples of this include chat bots on homepages that answer questions about the product in real time. Also often referred to as “conversational marketing“, the focus here is on better customer service. In order to attract more customers, the waiting time for queries is greatly reduced. In addition, the feeling of writing with a real person is created.
Even within social networks like Facebook, such chat bots are used as the first port of call for messages.
As mentioned at the beginning, the availability of information about customers also brings an increased potential for personalized addresses. The more appropriately a communication responds to the needs of the customer, the more relevant it is.
The above-mentioned best practices provide a good example of CRM personalization using customer data.