CHAPTER - 6

CRM - AN OVER VIEW

 CHAPTER 6
CUSTOMER RELATIONSHIP
MANAGEMENT: An over view

6.1 Introduction

6.2 Definitions of CRM

6.3 Objectives of CRM

6.4 Significance of CRM

6.5 Types of CRM Technology

6.6 Operational CRM

6.7 Analytical CRM

6.8 Collaborative CRM

6.9 CRM Process

6.10 CRM and Data Mining

6.11 E-CRM
 6. CRM-AN OVER VIEW

This chapter brings brief idea about customer relationship management. It includes

introduction to Customer Relationship Management, its different definitions, its

objectives, benefits and different types of Customer Relationship Management

technologies. The chapter also throws lights on Customer Relationship Management

process, the relation between Customer Relationship Management and data mining.

6.1 Introduction

Developing close cooperative relationship with customers is more important in the

current era of intense competition and demanding customers than it has ever before

faced with extremely tough competition and flat sales growth companies are finding it

hard to secure customer loyally. Research has proved that it cost five times more for

acquiring a new customer than retaining an old customer. Customer relationship

management starts with the in-depth knowledge of customers-their habits, desires and

their needs by analysing their cognitive, effective behaviour and attitudes. CRM

applies this knowledge to develop and design marketing strategies, to develop and

cultivate, long, mutually beneficial interaction and relationship with the customer.

Customer knowledge and interaction on the basis of this knowledge are the two pillars

for growth of any business.

Dynamic changes in the evolution of marketing environment and development of web

as marketing medium and its global acceptance have forced organizations to change,

the way in which business have been conducted. Thus E. business have evolved and is

expected that within few years it will become so mature and that would be the sole

pillar in terms of conducting business, because the so-called typical customer is no

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longer exists. Till very recently, the companies were not focused on selling as many

products and services as possible without regard to who was buying them. Most firms

stick to this product centric view today, based on their organisational structure and

compensation plans. Today consumers have more choice than ever before, about

where to go for their banking, grocery shopping and their vacationing. Deregulation

increased competition, even further as it drove price down, companies were forced to

invent new methods of interacting with customers to reduce cost and gain market

share. As a result of the above business environment the term customer relationship

came in to existence.

CRM actually a tremendous step forward in creating a system that can provide a

means for retaining individual loyalty in a world of nearly 6 billions souls. In order to

understand CRM, we have to look at changing nature of customers. While “customer

is the king” has been a mantra since 1940’s. Its contents has changed fundamentally

over the past decade. To understand these let us discuss who is a customer?

Imagine you are a company. You have paying clients. They give you money and you

give them products or services; and you call them your customers. You have

employees. You give them pay check, benefits and they give you productive work in

return. So he is also a customer to you. You have suppliers. They give you product

and services and you give them money. They too are customers for you. You have

channel partners. They give you sales, value added services and market information

and in return you give them commission. They are also your customers. Hence the

individual or group with whom you exchange value is a customer.

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Due to the competition and technological evolution, executives realized that cost

reduction tact’s were not enough to satisfy either customers or shareholders, who

continued to call them on the carpet for cording margins. Maximizing profitability

was the real game. The paradox was companies could not very well increase profit.

While simultaneously enticing new customers with practice break. AT & T and NCI

learned this hard way in 1980’s as they and other long - distance companies mailed

millions of $100 checks out to consumers, who switched their long distance service

and switched it back again.

6.2 Definitions of CRM

Now a days as we discussed earlier the competition is just a mouse click away.

Companies are slouching towards the realization that without customers product

won’t sell & revenues don’t materialize. They have been forced to become smarter

about selling and this means becoming smarter about who is buying. Companies are

reading the competitive writings on the wall and technology for a leg up.

This combined with the fact that it, cost a company six times more to sell a product to

a new customer than it does to sell to an existing one. Hence the smart business is

maximize the existing customer relationship. And the main way to extract every drop

of value from existing customers is to know who the best customers are and motivate

them to stay that way, which is a customer relationship management. The

infrastructure that enables the delineation of and increase the customer value and the

correct means by which to motivate valuable customers to remain loyal, indeed to buy

again, is termed as customer relationship management.

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Again CRM is a comprehensive set of processes and technologies for managing the

relationship, with potential and current customers and business partners across

marketing, sales, and service regardless of communication channel.

6.3 Objectives of Customer Relationship Management

> To understand the customer thoroughly and their needs even before they know

themselves.

> Decreasing customer churn by increasing customer satisfaction.

> Motivating customer to initiate revenue - generating contacts with business

organizations.

> Increasing the likelihood of the right response by a given customer or a

customer segment.

> To use technology to improve customer services and enable a greater degree

of customer differentiation in order to deliver unique customer service.

> To attract both old and new customers - through more personalized

communication.

> To maximize the revenue of the business firm.

6.4 Significance of CRM

CRM promises to help companies to get to know their customers well enough to

understand and which one’s to keep an which one they willing to loose and why? -

and how not to correspond in the mean time. CRM also means automating many of

the business process and accompanying analysis and saving precious time in bargain.

CRM also speaks about the automation of sales force with technology.

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6.5 Types of CRM Technology

Customer relationship management can be broadly segmented as, operational,

analytical and collaborative. There is a wide technological equations between

operational and analytical CRM. Operational CRM is a customer facing applications -

sales force automations, enterprise marketing automations, front office applications.

The analytical CRM includes data warehouses such as customer responses, which are

used by applications that supply algorithms to dissect the data and presented it in the

form of information’s to user. Collaborative CRM deals with the touch points of the

customers.

6.6 Operational CRM

This is called as ERP of CRM. The typical business functions consisting customer

service, order management, billing, sales and marketing automation. One facet of

operational CRM is the possibility of integrating the financial and human resource

functions of ERP applications such as people soft and SAP.

6.7 Analytical CRM

Analytical CRM is the capture, storage, extraction, processing, interpretation and

reporting of the customer data to a CRM user. Analytical CRM will absorb different

data’s about customer from different sources, and stores it in data where house, then

uses different techniques like data mining to process it to useful information’s. It also

personalize the response using data.

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6.8 Collaborative CRM

This is almost an overlay. It is the communication center, the coordination network,

that provides the neural paths to the customer and his suppliers. It could mean a

portal, a partner relationship management (PRM) application, or a customer

interaction center (CIC). It could mean communication channels such as the Web or

email, voice applications, or snail mail. It could mean channel strategies. In other

words, it is any CRM function that provides a point of interaction between the

customer and the channel itself.

6.9 CRM Process

Fig. 6.1 CRM Process Frame Work

FORMATION PERFORMANCE

Purpose
- Increase effectiveness
- improve Efficiency

Relationship
t performance
Programmes - Strategic
Account MGT - Financial
Retention - Marketing
Strategic Partnership * Satisfaction
* Retention
* Loyalty

Employee Training

Partners
~ Criteria
- Process Evaluation
-Enhancement
— Emprovement

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CRM Formation Process

The formation process of CRM refers to decisions regarding initiation of relational

activities for a firm with respect to a specific group of customers or with respect to an

individual customer with whom the company wishes to engage in a cooperative or

collaborative relationship. Hence it is important that a company is able to identify and

differentiate individual customers. In the formation process, three important decision

areas relate to defining the purpose (or objectives) of engaging in CRM; selecting

parties (or customer partners) for appropriate CRM programs and developing

programs (or relational activity schemes) for relationship engagement with the

customer

CRM Purpose

The overall purpose of CRM is to improve marketing productivity and enhance

mutual value for the parties involved in the relationship. CRM has the potential to

improve marketing productivity and create mutual values by increasing marketing

efficiencies and/or enhancing marketing effectiveness (Sheth and Parvatiyar 1995a,

Sheth and Sisodia 1995) By seeking and achieving operational goals, such as lower

distribution costs, streamlining order processing and inventory management, reducing

the burden of excessive customer acquisition costs, and through customer retention

economics, firms could achieve greater marketing efficiencies. They can enhance

marketing effectiveness by carefully selecting customers for its various programs,

individualizing and personalizing their market offering to anticipate and serve the

emerging needs of individual customer, building customer loyalty and commitment;

partnering to enter new markets and develop new products, and redefining the

competitive playing field for their company (Sheth and Parvatiyar 1995a). Thus,

stating objectives and defining the purpose of CRM in a company helps clarify the

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nature of CRM programs and activities that ought to be performed by the partners.

Defining the purpose would also help in identifying suitable relationship partners who

have the necessary expectations and capabilities to fulfill mutual goals. It will further

help in evaluating CRM performance by comparing results achieved against

objectives. These objectives could be specified as financial goals, marketing goals,

strategic goals, operational goals, and general goals.

Similarly, in the mass-market context, consumer’s expect to fulfill their goals related

to efficiencies and effectiveness in their purchase and consumption behavior. Sheth

and Parvatiyar (1995a) contend that consumers are motivated to engage in relational

behavior because of the psychological and sociological benefits associated with

reduction in choice decisions. In addition, to their natural inclination of reducing

choices, consumers are motivated to seek to rewards and associated benefits offered

by CRM programs.

Relational Parties

Customer partner selection (or parties with whom to engage in cooperative or

collaborative relationships) is another important decision in their relationship

formation state. Even though a company may serve all customer types, few have the

necessary resources and commitment to establish CRM programs for all. Therefore, in

the initial phase, a company has to decide which customer type and specific customers

or customer groups will be the focus of their CRM efforts. Subsequently when the

company gains experience and achieve successful results, the scope of CRM activities

could be expanded to include other customers into the program or engage in

additional programs (Shah 1997).

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Although partner selection is an important decision in achieving CRM goals, not all

companies have a formalized process of selecting customers. Some follow intuitive

judgmental approach of senior managers in selecting customer partners and others

partner with those customers who demand so. Yet other companies have formalized

processes of selecting relational partners through extensive research and evaluation

along chosen criteria. The criteria for partner selection vary according to company

goals and policies. These range from a single criterion such as revenue potential of the

customer to multiple criteria including several variables such as customer

commitment, resourceiilness, management values, etc.

CRM Programs

A careful review of literature and observation of corporate practices suggest that there

are three types of CRM programs: continuity marketing; one-to-one marketing; and,

partnering programs. These take different forms depending on whether they are meant

for end-consumers, distributor customers, or business-to-business customers. Table 1

presents various types of CRM programs commonly developed for different types of

customers. Obviously, marketing practitioners in search of new creative ideas develop

many variations and combinations of these programs to build closer and mutually

beneficial relationship with their customers.

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 Table 6.1

CRM Programs

Business to Business
Customer Types Mass Markets Distribution
Markets
Program Types
Continuity Marketing After-Marketing Continuous • Special Sourcing
Loyalty Programs Replinshment Arrangements
Cross-selling ECR Programs
One-to-one Marketing Permission Marketing Customer Business • Key Account
Personalization Development • Global Account Programs
Partnering/Co-Marketing Affinity Partnering Logistics Partnering • Strategic Partnering
Co-Branding Joint Marketing • Co-Design
• Co-Development

Source: Jagdish N. Sheth, Atul Parvatiyar etc. Customer Relationship Management

Tata Mcgraw Hill, New Delhi.

Continuity Marketing Programs

Given the growing concern to retain customers as well as emerging the knowledge

about customer retention economics have led many companies to develop continuity

marketing programs that are aimed at both retaining customers and increasing their

loyalty (Bhattacharya 1998; Payne 1995). For consumers in mass markets, these

programs usually take the shape of membership and loyalty card programs where

consumers are often rewarded for their member and loyalty relationships with the

marketers (Raphel 1995; Richards 1995). These rewards may range from privileged

services to points for upgrades, discounts, and cross-purchased items. For distributor

customers, continuity marketing programs are in the form of continuous

replenishment programs ranging anywhere from just-in-time inventory management

programs to efficient consumer response initiatives that include electronic order

processing and material resource planning (Law and Ooten 1993; Persutti 1992). In

business-to-business markets these may be in the form of preferred customer

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programs or in special sourcing arrangements including single sourcing, dual

sourcing, and network sourcing, as well as just-in-time sourcing arrangements (Hines

1995; Postula and Little 1992). The basic premise of continuity marketing programs is

to retain customers and increase loyalty through long-term special services that has a

potential to increase mutual value through learning about each other (Shultz 1995).

One-to-one Marketing

One-to-one or individual marketing approach is based on the concept of account-

based marketing. Such a program is aimed at meeting and satisfying each customer’s

need uniquely and individually (Peppers and Rogers 1995). What was once a concept

only prevalent in business-to-business marketing is now implemented in the mass

market and distributor customer contexts. In the mass market individualized

information on customers is now possible at low costs due to the rapid development in

information technology and due to the availability of scalable data warehouses and

data mining products. By using on-line information and databases on individual

customer interactions, marketers aim to fulfill the unique needs of each mass-market

customer. Information on individual customers is utilized to develop frequency

marketing, interactive marketing, and aftermarketing programs in order to develop

relationship with high yielding customers (File, Mack and Prince 1995; Pruden 1995).

For distributor customers these individual marketing programs take the shape of

customer business development. For example, Procter and Gamble have established a

customer team to analyze and propose ways in which Wal-Mart’s business could be

developed. Thus, by bringing to bare their domain specific knowledge from across

many markets, Procter & Gamble is able to offer expert advice and resources to help

build the business of its distributor customer. Such a relationship requires cooperative

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action and an interest in mutual value creation. In the context of business-to-business

markets, individual marketing has been in place for quite sometime. Known as key

account management program, here marketers appoint customer teams to husband the

company resources according to individual customer needs. Often times such

programs require extensive resource allocation and joint planning with customers.

Key account programs implemented for multi-location domestic customers usually

take the shape of national account management programs, and for customers with

global operations it becomes global account management programs.

Partnering Programs

The third type of CRM programs is partnering relationships between customers and

marketers to serve end user needs. In the mass markets, two types of partnering

programs are most common: co-branding and affinity partnering (Teagno 1995). In

co-branding, two marketers combine their resources and skills to offer advanced

products and services to mass-market customers (Marx 1994). For example. Delta

Airlines and American Express have co-branded the Sky Miles Credit Card for gains

to consumers as well as to the partnering organizations. Affinity partnering program is

similar to co-branding except that the marketers do not create a new brand rather use

endorsement strategies. Usually affinity-partnering programs try to take advantage of

customer memberships in one group for cross-selling other products and services. In

the case of distributor customers, logistics partnering and cooperative marketing

efforts are how partnering programs are implemented. In such partnerships the

marketer and the distributor customers cooperate and collaborate to manage inventory

and supply logistics and sometimes engage in joint marketing efforts. For business-to-

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business customers, partnering programs involving co-design, co-development and

co-marketing activities are not uncommon today (Young, Gilbert and McIntyre 1996).

CRM Governance Process

Once CRM program is developed and rolled out, the program as well as the individual

relationships must be managed and governed. For mass-market customers, the degree

to which there is symmetry or asymmetry in the primary responsibility of whether the

customer or the program sponsoring company will be managing the relationship

varies with tomer or the program sponsoring company will be managing the

relationship varies with the size of the market. However, for programs directed at

distributors and business customers the management of the relationship would require

the involvement of both parties. The degree to which these governance

responsibilities are shared or managed independently will depend on the perception of

norms of governance processes among relational partners given the nature of their

CRM program and the purpose of engaging in the relationship. Not al relationships

are or should be managed alike, however several researches suggest appropriate

governance norms for different hybrid relationships (Borys and Jemison 1989; Heide

1994; Sheth and Parvatiyar 1992).

Whether management and governance responsibilities are independently or jointly

undertaken by relational partners, several issues must be addressed. Those include

decisions regarding role specification, communication, common bonds, planning

process, process alignment, employee motivation and monitoring procedures. Role

specification relates to determining the role of partners in fulfilling the CRM takes as

well as the role of specific individuals or teams in managing the relationships and

related activities (Heide 1994). Greater the scope of the CRM program and associated

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tasks, and the more complex is the composition of the relationship management team;

the more complex is the composition of the relationship management team; the more

critical is the role specification decision for the partnering firms. Role specification

also helps in clarifying the nature of resources and empowerment needed by

individuals or teams charged with the responsibility of managing relationship with

customers.

Communication with customer partners is a necessary process of relationship

marketing. It helps in relationship development, fosters trust, and provides the

information and knowledge needed to undertake cooperative and collaborative

activities of relationship marketing. In many ways it is the lifeblood of relationship

marketing. By establishing proper communication channels for sharing information

with customers a company can enhance their relationship with them. In addition to

communicating with customers, it is also essential to establish intra-company

communication particularly among all concerned individuals and corporate functions

that directly play a role in managing the relationship with a specific customer or

customer group.

Although communication with customer partners help foster relationship bonds,

conscious efforts for creating common bonds will have a more sustaining impact on

the relationship. In business-to-business relationships, social bonds are created

through interactions, however with mass-market customers frequent face-to-face

interactions will be uneconomical. Thus marketers should create common bonds

through symbolic relationships, endorsements, affinity groups, and membership

benefits or by creating on-line communities. Whatever is the chosen mode, creating

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value bonding, reputation bonding and structural bonding are useful process of

institutionalizing relationship with customers (Sheth 1994).

Another important aspect of relationship governance is the process of planning and

the degree to which customers need to be involved in the planning process. Involving

customers in the planning process would ensure their support in plan implementation

and achievement of planned goals. All customers are not willing to participate in the

planning process nor is it possible to involve all to them for relationship marketing

programs for the mass market. However, for managing cooperative and collaborative

relationship with large customers, their involvement in the planning process is

desirable and sometimes necessary.

Executives are sometimes unaware, or they choose to initially ignore the nature of

misalignment in operating processes between their company and customer partners,

leading to problems in relationship marketing implementation. Several aspects of the

operating processes need to be aligned depending on the nature and scope of the

relationship. For example, operating alignment will be needed in order processing,

accounting and budgeting process, information systems, merchandising processes, etc.

Several human resource decisions are also important in creating the right organization

and climate for managing relationship marketing. Training employees to interact with

customers, to work in teams, and manage relationship expectations are important. So

is the issue of creating the right motivation through incentives, rewards, and

compensation systems towards building stronger relationship bonds and customer

commitment. Although institutionalizing the relationship is desirable for the long­

term benefit of the company, personal relationships are nevertheless formed and have

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an impact on the institutional relationship. Thus proper training and motivation of

employees to professionally handle customer relationships are needed.

Finally, proper monitoring processes are needed to safeguard against failure and

manage conflicts in relationships. Such monitoring processes include periodic

evaluation of goals and results, initiating changes in relationship structure, design or

governance process if needed, creating a system for discussing problems and

resolving conflicts. Good monitoring procedures help avoid relationship

destabilization and creation of power asymmetries. They also help in keeping the

CRM program on track by evaluating the proper alignment of goals, results and

resources.

Overall, the governance process helps in maintenance, development, and execution

aspects of CRM. It also helps in strengthening the relationship among relational

partners and if the process is satisfactorily implemented it ensures the continuation

and enhancement of relationship with customers. Relationship satisfaction for

involved parties would include governance process satisfaction in addition to

satisfaction from the results achieved in the relationship (Parvatiyar, Biong and

Wathne 1998).

CRM Performance Evaluation Process

Periodic assessment of results in CRM is needed to evaluate if programs are meeting

expectations and if they are sustainable in the long run. Performance evaluation also

helps in making corrective action in terms of relationship governance or in modifying

relationship marketing objectives and program features. Without a proper

performance metrics to evaluate CRM efforts, it would be hard to make objective

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decisions regarding continuation, modification, or termination of CRM programs.

Developing a performance metrics is always a challenging activity as most firms are

inclined to use existing marketing measures to evaluate CRM. However, many

existing marketing measures, such as market share and total volume of sales may not

be appropriate in the context of CRM. Even when a more CRM oriented measures are

selected, it cannot be applied uniformly across all CRM programs particularly when

the purpose of each program is different from one another. For example, if the

purpose of a particular CRM efforts is to enhance distribution efficiencies by reducing

overall distribution cost, measuring the programs impact on revenue growth and share

of customer’s business may not be appropriate. In this case, the program must be

evaluated based on its impact on reducing distribution costs and other metrics that are

aligned with those objectives. By harmonizing the objectives and performance

measures one would expect to see a more goal directed managerial action by those

involved in managing the relationship.

For measuring CRM performance, a balanced scorecard that combines a variety of

measures based on the defined purpose of each program (or each cooperative/

collaborative relationship) is recommended (Kaplan and Norton 1992). In other

words, the performance evaluation metrics for each relationship or CRM program

should mirror the set of defined objectives for the program. However, certain global

measures of the impact of CRM effort of the company are also possible. Srivastava,

et. al. (1998) developed a model to suggest the asset value of cooperative

relationships of the firm If cooperative and collaborative relationship with customers

is treated as an intangible asset of the firm, its economic value add can be assessed

using discounted future cash flow estimates. In some ways, the value of relationships

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is similar to the concept of brand equity of the firm and hence may scholars have

alluded to the term relationship equity (Bharadwaj 1994; Peterson 1995). Although an

well-accepted model for measuring relationship equity is not available in the literature

as yet, companies are trying to estimate its value particularly for measuring the

intangible assets of the firm.

Another global measure used by firms to monitor CRM performance is the

measurement of relationship satisfaction. Similar to the measurement of customer

satisfaction, which is now widely applied in many companies, relationship satisfaction

measurement would help in knowing to what extent relationship partners are satisfied

with their current cooperative and collaborative relationships. Unlike customer

satisfaction measures that are applied to measure satisfaction on one side of the dyad,

relationship satisfaction measures could be applied on both sides of the dyad. Both the

customer and the marketing firm have to perform in order to produce the results in a

cooperative relationship and hence each party’s relationship satisfaction could be

measured (Biong, Parvatiyar and Wathne 1996). By measuring relationship

satisfaction, one could estimate the propensity of either party’s inclination to continue

or terminate the relationship. Such propensity could also be indirectly measured by

measuring customer loyalty (Reicheld and Sasser 1990). When relationship

satisfaction or loyalty measurement scales are designed based on its antecedents, it

could provide rich information on their determinants and thereby help companies

identify those managerial actions that are likely to improve relationship satisfaction

and/or loyalty.

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CRM Evolution Process

Individual customer relationships and CRM programs are likely to undergo evolution

as they mature. Some evolution paths may be pre-planned, while others would

naturally evolve. In any case, several decisions have to be made by the partners

involved about the evolution of CRM programs. These include decisions regarding

the continuation, termination, enhancement, and modifications of the relationship

engagement. Several factors could cause the precipitation of any of these decisions.

Amongst them relationship performance and relationship satisfaction (including

relationship process satisfaction) are likely to have the greatest impact on the

evolution of the CRM programs. When performance is satisfactory, partners would be

motivated to continue or enhance their CRM program (Shah 1997; Shamdasani and

Sheth 1995). When performance does not meet expectations, partners may consider

terminating or modifying the relationship. However, extraneous factors could also

impact these decisions. For example, when companies are acquired, merged, or

divested many relationships and relationship marketing programs undergo changes.

Also, when senior corporate executives and senior leaders in the company move CRM

programs undergo changes. Yet, there are many collaborative relationships that are

terminated because they had planned endings. For companies that can chart out their

relationship evolution cycle and state the contingencies for making evolutionary

decisions, CRM programs would be more systematic.

6.10 Customer Relationship Management and Data Mining

Introduction

Data mining is the process of discovering implicit and hidden patterns in data is one

of the most important backend process. It provides necessary intelligence to

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Customer Relationship Management initiative. Normally data mining is done in two

levels which are Macro level and Micro level. The Macro level is considering

customers at a large, their behaviour. The customers data will be collected from a

cluster of datas. Wherein Micro level the attempts are made tracking a particular

customer and try to further the relationship by acting in a timely way to his or her

preferences. The data mining relevant to Customer Relationship Management for

segmentation, classification, regression, deviation, detection and link analysis. The

advance in technology, networking, manufacturing have helped companies to quickly

match the competition As a result product quality and cost no longer lies in the

center of market. Hence customer relationship management caught important in the

market aiming at maximising customer satisfaction by building mutual long term

relationship with the customers and business organsiations. It is important to employ

technology for getting relevant information about a customers interaction through out

the firm. Advances in data storage and processing technologies has made it possible

today to store very large amounts of data in what are called data ware houses and then

used data mining tools to extract relevant information. Hence data mining helps in

the process of understanding customer by providing necessary information and

facilities informed for decision making.

Customer Relationship Management and Data Mining

Customer Relationship Management is a technology initiative that aims to strengthen

the front end operation and build a mutual valuable long term relationship with the

customers. The firm might enjoy competitive advantage of its customers for long

term by building mutually beneficial relationships that increase switching cost and

thus cannot be easily replicated. A typical Customer Relationship Management cycle

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consist of front end operations that interact with the customers and obtain a data

about him or her. This is typically consolidated from various contact points and fed

into data ware house. That data warehouse consolidates not only transaction data but

also data obtained form outside sources like senses data and provides a fertile ground

for analysis. And data analysis is done by data mining methods. The output is

interpreted as a new knowledge is transferred to a central customer repository where

all employees of the firm might access it. Thus data mining provides the intelligence

behind Customer Relationship Management initiative.

Data Mining Operations relevant to Customer Relationship Management

Data mining task produce knowledge that tend to be predictive or descriptive.

Predictive operations assigns value to some variables based on other related ones.

Description focus on describing essential futures or characteristics of the data.

Customer Relationship Management uses both descriptive and predictive power of

data mining operations to try to understand the customer better.

Classification

Classification is a process that maps a given data item into one of the several

predefined classes. Customer Relationship Management uses classification for

variety of purpose like behaviour prediction, product and customer categorization.

Classification would not be meaningful if we have no predefined categories.

Regression

Regression is the operation of learning a function that predicts the value of a real

valued dependent variable based on the value of other independent variables.

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Regression finds application in Customer Relationship Management environment

where prediction needs to be made about the behaviour involving real valued

variables. Regression needs sufficient amounts of data to be reliable and valid. If the

store does not have enough data then regression is not a technique to be employed.

Link Analysis

Link analysis seeks to be established relationship between items or variables in a

database record to expose patterns and trends. Link analysis can also trace

connections between items of record over time. The most important link analysis in

Customer Relationship Management, called market basked analysis, is an operation

that seeks relationship between product items, characterizing, product affinities or

buyer preferences. Link analysis might some time give relations that appears to hold

true, but are of random occurrence. Links between items must be properly examined

or further tests must be conducted before inference is made.

Segmentation

Segmentation aims at identifying a finite set of naturally occurring clusters or

categories to describe data. Segmentation is done in such way that cases belongs to a

segment or a cluster are more similar with respect to the clustering criterion while

they differ significantly from the cases belonging to other segments. In Customer

Relationship Management segmentation would not be useful if there are not

underlying groups. Data on customer of a section of the retail store, which store

identical products, might not show any naturally occurring segments.

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Deviation Detection

Deviation detection focus on discovering most significant changes in data from

previously measured, expected or normative values. Most Customer Relationship

Management solutions have a deviation detection operation running in parallel on

regular basis. Suppose a retailer finds that sales from a particular section of store

have been much less than expected. This deviation on further analysis points to non

stocking of a popular brand. Deviations some times might be a random occurrence

while at other times as a result of true changes in fundamentals. It must be noted that

most of the data mining operations are exploratory in nature. They do not ascertain

the reason for the occurrence of detected pattern. A further point to notice that the use

of data mining operations is detected by questions that have been raised. Two or

more data mining tasks are used in proper conjunction would give a manager with

rich inside into the phenomenal taking place and probably ferret out relationship

otherwise impossible to recover.

Customer Relationship Management request timely and relevant informations about

the customer. Data mining tasks extracts information that can provide the main

support for Customer Relationship Management initiative. However Data mining is

just a tool of Customer Relationship Management having a central repository that

handles on relevant customer data and discovered knowledge and aligning all process

to reflect the customer santric approach are also important. Data mining would be a

backbone to Customer Relationship Management if used properly for building and

maintaining a long term profitable Customer Relationships.

Data Mining Tools and Techniques ; A variety of data mining tools and techniques

are available to support the data mining operation. These techniques differ from each

other in types of data handled, assumption about data, scope and interpretation of

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output. Some of data mining tools are Decision Trees, Rule Induction, Case Base

Reasoning, Visualization Techniques, Nearest Neighbour Technique and Cluster

Algorithm.

Decision Trees ; Decision Trees are classification tools which classify examples into

classes keeping one variable at a time and dividing the other data based on it.

Decision Trees can also be used as rule inducer for classification and segmentation.

Segmentation is possible because at each node of classification tree splits the data into

segments depending on the value of variables considered. A retailer can classify the

products and their customer using classification trees.

Rule Induction: Rule induction is a process of inducing, general rules from a data

base of specific examples. Here only association rule is considered. Association

rules are implications rules of the form B ^ C, which indicate the relationship

between B and C, where B and C may be a single item or a set of items. These rules

are exploratory in nature but are enough to handle data mining operations. The

retailer will get an idea on which products sell together by running an association rule

algorithm.

Case Based Reasoning : Case base reasoning method tries to stimulate how a

human being thinks. Typically when an example is presented to case based reasoning

solution, it tries to match the current examples with other examples which are in its

repository and retrieves the case, which is most similar to the current case. Decision

has to be taken base on exploration its power depends largely on the indexing method

used to store the case and matching method used to retrieve relevant cases. However

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the data base of typical cases is not available then, this method will not produce a

good classification theme.

Visualization Techniqeus : Visualization techniques allows the user to view data

from various angles using graphics, display techniques like charts, diagrams, displays

for multi dimensional data etc. It is used in conjunction with other data mining

techniques. Visualization techniques are ideal when users do not know what and

where to look to discover new knowledge and ideas. It is useful when the data set is

small, which also helps in interpretation and evaluation of information’s extracted by

other data mining techniques.

Nearest Nieghbour Technique : These techniques used a set of examples to

approximate a classification model. Through this techniques the matching is done on

the basis of certain similar characters.

Clustering Algorithms ; Clustering Algorithms segments the data base into clusters

such as intra clusters similarly is maximised and inter clusters similarly is maximised.

These are many approaches for clustering each having its own advantages and

disadvantages.

The selection of data mining tools are much important. It depends on the ability of

the technique and the information needed by the user.

6.11 E-Customer Relationship Management

Introduction : Managing relationship with the customers and making them delighted

or making them to exceed their expectations has become so important and necessary

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due to globalization, where customer satisfaction is the key factor for the success of

any company.

The perception about a company is based on the different experiences with the people

within the organization. Today the choice is open for the customers. Here the

information is the key to success. So it is necessary to know the needs and wants of

customers. It is also equally important to know all customers are not equally

profitable as the service is rendered by the company.

Emergence of E-Customer Relationship Management: There is a lot of debate

over whether E-Customer Relationship Management is a real concept or a marketing

trick by Customer Relationship Management companies, trying to distinguish

themselves in the industry. E-Customer Relationship Management is a real concept.

It is a set of process or online Customer Relationship Management.

Traditional brick companies usually starts their direct marketing efforts through

simple list pulls and one shot campaigns and then gravitated to a data ware house and

software for executing multiple targeted companies that run simultaneously and

utilised sophisticated capabilities. Dotcom companies start with the E-commerce

applications, and find that then they must add the backend data ware house and off

line marketing channels to flush out their E-Customer Relationship Management

offerings. The use of internet as a main business package is an E-Customer

Relationship Management.

E-Customer Relationship Management: In simple term E-Customer Relationship

Management provides companies a means to conduct interactive, relevant,

personalized and relevant communication with the customers across both electronics

and traditional channels. It utilizes a complete view of customers to make decision

about messaging, offers and channel delivery. It also focuses on understanding how

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companies of customer relationship affects the business. Advocates of E-Customer

Relationship Management recognized that a comprehensive understanding of

customer activities, personalization, relevance, permission, timeless and metrics is a

means to an end optimizing value of your most important asset; your customers.

E-Customer Relationship Management value comes from giving a customer that

“Total experience” to the web. Traditional Customer Relationship Management

channels can’t do that because they are based on applications that may not be

effective in giving customer direct access to the interfaces and functionality.

E-Customer Relationship Management also the customer facing internet portion of

Customer Relationship Management. It includes capabilities like self service

knowledge bases, automated e-mail responses, personalization of web content, online

product bundling and pricing and so on. E-Customer Relationship Management gives

internet uses the ability to carry on users with the business through their preferred

communication channels. It also allows the business to off set expensive customer

service agents to value its ability to improve customer satisfaction and reduce cost

through improved efficiency. However some times E-Customer Relationship

Management will decreases the customer satisfaction by customer frustration. Hence

E-Customer Relationship Management to be installed in conjunction with the

traditional Customer Relationship Management and that to functions together.

Rationale of E-Customer Relationship Management:

> Optimized the value of interactive relationship.

> Enable business to extend itself personalized messaging to the web and e-mail.

> Co-ordinate marketing initiatives across all customer channels.

> Leverage customer information for more effective e-marketing and e-business.

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> Focus business on improving customer relationship and earning a greater share of

each customers business through constant measurement, assessment and

actionable customer contact strategies.

Characteristics of E-Customer Relationship Management:

Focused on Process: A Customer Relationship Management process brings you the

appropriate technology and it will reduce the technology gap as well as refining

business process.

Data Ware House Driven: In a E-Customer Relationship Management solution the

data ware house or customer data basket contents a consolidated and comprehensive

view of the customer. The data basket will give a broad profile of the customer. And

it is needed to be determined an appropriate action, the most effective offers to make

and the best channel to deliver your pertinent message.

A Multi channel view: Organizations today have to different methods for

interacting with its customers. There may be different applications to support the

different websites of the company, and there is no link between different applications.

Measurement Driven ; E-Customer Relationship Management employees customer

analytical tools for measuring customer communication initiatives, capture results,

attribute changes of customers behaviour, to a particular communication of customer

communication initiatives.

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