Page 168 - Marketing Management

CREATING LONG-TERM LOYALTY RELATIONSHIPS | CHAPTER 5 145

2. To decide which customers should receive a particular offer—Companies interested in sell-
ing, up-selling, and cross-selling set up criteria describing the ideal target customer for a par-
ticular offer. Then they search their customer databases for those who most closely resemble
the ideal. By noting response rates, a company can improve its targeting precision. Following a
sale, it can set up an automatic sequence of activities: One week later send a thank-you note;
five weeks later send a new offer; ten weeks later (if customer has not responded) phone and
offer a special discount.
3. To deepen customer loyalty—Companies can build interest and enthusiasm by remember-
ing customer preferences and sending appropriate gifts, discount coupons, and interesting
reading material.
4. To reactivate customer purchases—Automatic mailing programs (automatic marketing) can
send out birthday or anniversary cards, holiday shopping reminders, or off-season promo-
tions. The database can help the company make attractive or timely offers.
5. To avoid serious customer mistakes—A major bank confessed to a number of mistakes it had
made by not using its customer database well. In one case, the bank charged a customer a
penalty for late payment on his mortgage, failing to note he headed a company that was a
major depositor in this bank. The customer quit the bank. In a second case, two different staff
members of the bank phoned the same mortgage customer offering a home equity loan at
different prices. Neither knew the other had made the call. In a third case, the bank gave a
premium customer only standard service in another country.

The Downside of Database Marketing and CRM
Database marketing is most frequently used by business marketers and service providers that nor-
mally and easily collect a lot of customer data, like hotels, banks, airlines, and insurance, credit card,
and phone companies. Other types of companies in the best position to invest in CRM are those
that do a lot of cross-selling and up-selling (such as GE and Amazon.com) or whose customers
have highly differentiated needs and are of highly differentiated value to the company. Packaged-
goods retailers and consumer packaged-goods companies use database marketing less frequently,
though some (such as Kraft, Quaker Oats, Ralston Purina, and Nabisco) have built databases for
certain brands. Some businesses cited as CRM successes include Enterprise Rent-A-Car, Pioneer
Hi-Bred Seeds, Fidelity Investments, Lexus, Intuit, and Capital One. 96
Having covered the upside of database marketing, we also need to cover the downside. Five
main problems can prevent a firm from effectively using CRM.
1. Some situations are just not conducive to database management. Building a customer data-
base may not be worthwhile when: (1) the product is a once-in-a-lifetime purchase (a grand
piano); (2) customers show little loyalty to a brand (there is lots of customer churn); (3) the
unit sale is very small (a candy bar) so CLV is low; (4) the cost of gathering information is too
high; and (5) there is no direct contact between the seller and ultimate buyer.
2. Building and maintaining a customer database requires a large, well-placed investment in
computer hardware, database software, analytical programs, communication links, and
skilled staff. It’s difficult to collect the right data, especially to capture all the occasions of
company interaction with individual customers. Deloitte Consulting found that 70 percent of
firms found little or no improvement from implementing CRM because the CRM system was
poorly designed, it became too expensive, users didn’t make much use of it or report much
benefit, and collaborators ignored the system. Sometimes companies mistakenly concentrate
on customer contact processes without making corresponding changes in internal structures
and systems. 97
3. It may be difficult to get everyone in the company to be customer oriented and use the avail-
able information. Employees find it far easier to carry on traditional transaction marketing
than to practice CRM. Effective database marketing requires managing and training employ-
ees as well as dealers and suppliers.
4. Not all customers want a relationship with the company. Some may resent knowing the
company has collected that much personal information about them. Online companies
should explain their privacy policies and give consumers the right not to have their informa-
tion stored. European countries do not look favorably on database marketing and are protec-
tive of consumers’ private information. The European Union passed a law handicapping the