Download MBA Marketing 4th Semester Customer Relationship Management Notes

Download MBA-Marketing (Master of Business Administration) 4th Semester Customer Relationship Management Notes

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CUSTOMER RELATIONSHIP MANMAGEMENT

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UNIT - 1

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1. INTRODUCTION

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2. CUSTOMER LOYALTY

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3. SUCCESS FACTORS

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4. THREE LEVELS OF SERVICE

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5. SERVICE ? LEVEL AGREEMENTS

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CUSTOMER RELATIONSHIP MANMAGEMENT

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LEARNING ASPECTS

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Evaluation of CRM

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Schools of thought in CRM
Benefits of CRM

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Customer loyalty
Success factors
Service levels

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Service level agreements

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1. INTRODUCTION

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EVALUATION OF CUSTOMER RELATIONSHIP MANAGEMENT

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Customer Relationship Management (CRM) is to create a competitive advantage by

being the best at understanding, communicating, delivering, and developing existing

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customer relationships, in addition to creating and keeping new customers. It has

emerged as one of the largest management buzzword. Popularised by the business

press and marketed by the aggressive CRM vendors as a panacea for all the ills

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facing the firms and managers, it means different things to different people. CRM,

for some, means one to one marketing while for others a call centre. Some call

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database marketing as CRM. There are many others who refer to technology

solutions as CRM. If so, what is CRM?

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Merchants and traders have been practicing customer relationship for centuries.

Their business was built on trust. They could customize the products and all aspects

of delivery and payment to suit the requirements of their customers. They paid

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personal attention to their customers, knew details regarding their customers tastes

and preferences, and had a personal rapport with most of them. In many cases, the

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interaction transcended the commercial transaction and involved social interactions.

Even today, this kind of a relationship exists between customers and retailers,

craftsmen, artisans ? essentially in markets that are traditional, small and classified

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as pre-industries markets.

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These relationship oriented practices have changed due to industrial revolution..

Businesses adopted mass production, mass communication and mass distribution to

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achieve economics of scale. Manufactures started focusing on manufacturing and

efficient operations to cut costs. Intermediaries like distributors, wholesalers and

retailers took on the responsibilities of warehousing, transportation, distribution and

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sale to final customers. This resulted in greater efficiencies and lower costs to

manufacturers but brought in many layers between them and the customers. The

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resulting gap reduced direct contacts and had a negative impact on their

relationships.

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The post-industrial era saw the re-emergence of relationship practices. Marketing

academicians.

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(a) Rapid advances in technology,

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(b) Intensive competition in most markets,

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High

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Relationship
Orientation

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Low

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Pre-Industrial Era

Industrial Era

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Information era

(Relationship

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(Product Centric)

(Relationship

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Centric-Small Scale)

Centric-Large Scale)

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Figure 1.1 The Evolution of Relationship Orientation

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Technological Advancement

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More information, communication and production technologies have helped marketers

come closer to their customers. Firms operating in diverse sectors ranging from

packaged goods to services started using these technologies to know their customers,

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learn more about them, and then build stronger bonds with them through frequent

interactions. Marketers could gain knowledge about customers, which helped them

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respond to their needs through manufacturing, delivery, and customer service.

Technology also enabled ordering and product-use related services.

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Though the emergence of CRM in recent times coincided with the information age,

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one must remember that technology is just an enabler. Technology enabled

marketers overcome several long felt shortcomings of mass marketing. Some of

these included:

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- Inefficiencies of mass marketing: 1980s and early 1990s witnessed some of

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the most radical business transformations that resulted in cost reductions in

almost all functional departments except marketing. Manufacturing and

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related operations costs were reduced through business process

reengineering, human resource costs were reduced through outsourcing,

restructuring and layoffs, financial costs were reduced through financial

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reengineering but marketing costs kept increasing due to increased

competition and product parity in virtually every industry.

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- Lack of fast, effective and interactive models of customer contact, feedback

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and information.

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- Lack of consolidated information about customer interactions, purchase

behavior and future potential.

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Intensive Competition

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In competitive markets, specially the ones that were maturing and witnessing slow

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or no growth, marketers found it more profitable to focus on their existing

customers. Studies have shown that it costs up to 10-12 times more to attract a new

customer than to retain an existing customer. Marketers have now started focusing 5

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on the lifetime value of customers. They are moving away from just trying to sell

their products to understanding, customers needs and wants and then satisfying their

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needs. This has led to a relationship orientation which creates opportunities to cross

sell products and services over the lifetime of the customer.

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Growing Importance of the Service Sector

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The service sector contributes to over two-third of the GDP of most advanced

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economies. In India, the services sector contributes to over 50 per cent of the

economy. One of the characteristics of the service industries is the direct interaction

between the marketer and the buyer. In services, the provider is usually involved in

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the production as well as delivery directly. For example, professional service

providers like a doctor or consultant are directly involved in production as well as

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delivery of their services. Similarly, the customers are directly involved in

production in the purchase and consumption of these services. These direct contacts

create opportunities for better understanding, a better appreciation of needs as well

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as constraints and emotional bonding all of which facilitate relationship building.

Therefore it should come as no surprise when you see the service firms pioneering

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many of the customer relationship initiatives. Firms operating in the financial

services, hospitality business, telecom, and airlines are the early adopters and

extensive users of CRM practices.

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Adoption of total Quality Management (TQM) Programmes

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Total quality management programmes help companies offer quality products and

services to customers at the lowest prices. To enable this value proposition, 6

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organizations needed to work closely with their customers, intermediaries as well as

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suppliers thus fostering close working relationships with members of the marketing

system. Companies such as Intel, Xerox, and Toyota formed partnering

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relationships with suppliers and customers to practice TQM.

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Other developments such as an increase in the number of demanding customers,

increased fragmentation of markets, and generally high level of product quality

forced business to seek sustainable competitive advantages. A competitive

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advantage is sustainable only when it is not easily replicated. One such sustainable

competitive advantage is the relationship that a firm develops with its customers.

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SCHOOLS OF THOUGHT ON CRM

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The relationship marketing is supported by the growing research interest in different

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facets of this concept. Researchers in different countries observed this shift in

marketer`s orientation towards customer relationship and started exploring the

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phenomenon. The initial approaches to CRM can be broadly classified as:

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1. The Anglo-Australia Approach,

2. The Nordic Approach, and

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3. The North American Approach.

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The Anglo-Australian approach integrated the contemporary theories of quality

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management services marketing and customer relationship economics to explain the

emergence of relationship marketing

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The Nordic approach views relationship marketing as the confluence of interactive

network theory, services marketing and customer relationship economics. The

interactive network theory of industrial marketing views marketing as an interactive

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process in a context where relationship building is an area of primary concern for

marketers.

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Quality

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Management

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Services

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Customer

Marketing

Relationship

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Concepts

Economics

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Relationship

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Marketing

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Figure 1.2 Anglo-Australian Approach of Relationship Marketing

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Interactive

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Network

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Customer

Service

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Relationship

Marketing

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Economics

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Relationship

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Marketing

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Figure 1.3 Nordic Approach to Relationship Marketing

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In contrast, the initial focus of the North American scholars was on the relationship

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between the buyer and seller operating within the context of the organizational

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environment which facilitated the buyer seller relationship.

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Buyer

Organisational
Environment

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Relationship

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Manager

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Figure 1.4 North American Approach to Relationship Marketing

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One of the broader approaches to CRM emerged from the research conducted by

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academics at the Centre for Relationship Marketing and Service Management at the

Cranfield University, U.K. The broadened view of relationship marketing addresses

a total of six key market domains, not just the traditional customer market. It also

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advocated for a transition for marketing from a limited functional role to a cross-

functional role and a shift towards marketing activities for customer retention in

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addition to the conventional customer retention in addition to the conventional

customer acquisition.

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The six markets are as follows

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1. Customer markets ? existing and prospective customers as well as

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intermediaries.

2. Referral markets ? existing customers who recommend to other prospects,

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and referral sources or multipliers` such as doctors who refer patients to a

hospital or a consultant who recommends a specific IT solution,

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3. Influence markets ? government, consumer groups, business press and

financial analysts.

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4. Recruitment markets ? for attracting the right employees to the organization,

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5. Supplier markets ? suppliers of raw materials, components, services, etc.,

and

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6. Internal markets - the organization including internal departments and staff.

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Internal

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Markets

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Supplier

Referral

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Markets

Markets

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Customer

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Markets

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Recruitment

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Influence

Markets

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Markets

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Figure 1.5 The Six Markets Framework

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DEFINING CRM

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The preceding discussions highlight the range of perspectives adopted by

researchers in understanding and explaining relationships. Similarly in marketing

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literature, the terms customer relationship management and relationship marketing

have been used interchangeable to reflect a variety of themes and perspectives.

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Some of these themes offer a narrow functional marketing perspectives while others

offer a perspective that is broad and somewhat paradigmatic in approach and

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orientation. A narrow perspective of customer relationship management is database

marketing emphasizing the promotional aspects of marketing linked to database

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efforts, Another view point is to consider CRM only as customer retention in which

a variety of after marketing tactics are used for customer bonding or staying in 11

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touch after the sale is done. A more popular approach with recent application of

information technology is to focus on individual or one to one relationship with

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customer that integrates database knowledge with a long-term customer retention

and growth strategy.

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Jackson applied the individual account concept in industrial market to suggest

markets CRM to mean, marketing oriented toward strong, lasting relationship with

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individual accounts

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McKenna offered a more strategic view by putting the customer first and shifting

the role of marketing from manipulating the customer (telling & selling) to genuine

customer involvement (communicating & sharing the knowledge).

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Berry, in a broader term stressed that attracting new customers should be viewed

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only as intermediate step in the marketing process. Developing closer relationships

with this customers and turning them into loyal is an equally important aspect of

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marketing. Thus, he defined relationship marketing as attracting, maintaining, and,

enhancing customer relationships.

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By focusing on the value of interaction in marketing and its consequent impact on a

customer relationships, a broader perspective espouses that customer relationship

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should be the dominant paradigm of marketing. As Gronroos stated: Marketing is to

establish, maintain and enhance relationship with customers and other partners, at a

profit, so that the objectives of the parties involved are met. This is achieved by a

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mutual exchange and fulfillment of promises. The implication of Gronroos

definition is that customer relationships is should be devoted to building and

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enhancing

such relationship. Similarly, Morgan and Hunt suggested that 12

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relationship marketing refers to all marketing activities directed towards

establishing, developing and maintaining successful relationships.

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Figure 1.1 Shift in focus.

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Traditional Marketing Focus

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Provider

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Parity

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Product

Price

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Customer

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Consideration

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and

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Potential

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Promotion

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Place

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Purchase

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Customer Experience Focus

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Customer

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Differential

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Marketing

Sales

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Customer

Interactions

Interactions

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Satisfaction

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Loyalty,

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Service

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Support

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and

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Interactions

Interactions

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Value

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BENEFITS OF CRM

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Customers are Profitable over a period of time

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Studies by the US-based Bain and Company have shown that a customer becomes

more profitable with time because the initial acquisition cost exceeds gross margin

while the retention costs are much lower. When an organization retains the

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customer, it gets a larger share of the customers wallet at a higher profit-one percent

increase in sale to existing customer increase profits by 17 per cent while the same

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amount of sale to new customer increased profit by only 3 per cent. This huge

different is explained by the fact that for most companies the cost of acquiring the

customer is very high. It costs six to eight times more to sell to a new customer than

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to sell to an existing one. The same study also highlighted that a company can boost

its profit up 85 per cent by increasing its annual customer retention by only 5 per

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cent.

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Similarly, studies have shown that the probability of selling a product to a prospect

is 15 per cent while it is 50 per cent to a existing customer. Thus, the time, the effort

and the costs of selling are much lower for an existing customer.

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Customer probability is Skewed

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An analysis of the revenue and profit contribution of customer base of banks in the

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US, Europe and Australia showed the following:

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- The top 20 per cent of the customers contribute to 150 per cent of the profits

while the bottom 20 per cent drain 50 per cent of the profits and the rest 60

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per cent just break even.

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Experiences of Indian organizations are on similar lines. In a large public sector

Banks, the top 23 per cent of the customers contribute to 77 per cent of the

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revenues. Similarly, the top 27 per cent customers of a leading cellular phone

service provider contributes to 75 per cent of the revenues.

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The implication of such a skew in customer profitability and revenue contribution

are startling for organizations, which use to conventionally treat all customers are

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equal`. Competitors have to just lure these top customers and the organization

would face serious problems. It also highlights the fact that one has to adopt

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different strategies for different customer groups:

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-

Programmes have to be developed to retain and build stronger bonds with

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the top gold standard` customers so that they do not get poached`

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- Activity-Based Costing analysis has to be done with the middle group of

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potentials` so that the cost of serving this customers are reduced. In

addition, cross-selling and up selling should be done to increase the

profitability of these customers.

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- An analysis of the bottom growth has to be done to identify those customers

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who can be shifted to the potential` group. For the remaining, the cost of

service has to reduce by encouraging them to use lower cost channels. In

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extreme cases, some of these customers will be encouraged to defect to

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competitors. Outsourcing of loss making customers to specialized low

overhead agencies is an emerging trend.

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Marketing Benefits of CRM

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CRM will gradually reduce organization`s dependence on periodic surveys to

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gather data. Collection of data related to buying and consumption behavior will be

an ongoing process. In many cases, the transaction data is automatically collected

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some times real time as in the e-commerce transaction. This rich repository of

customer information and knowledge updated through regular interactions and

actual customer transactions and purchase behavior will help marketers to develop

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and market customer centric products successfully.

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Customized promotions-based customer preferences and purchase patterns will

substantially reduce the wasteful expenditure of mass communication and even

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direct mailing. As a customized promotion are more focused and are based on a

deeper insight of existing customers, they have a greater chance of conversion to

sales.

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Service Benefits of CRM

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Research findings conducted across industries as a part of a Technical Assistance

Research Project (TARP) indicate that:

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- 95 per cent of the customers do not bother to complain, the just take their

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business else where.

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- Most loyal customers take time to complain. This enables the product /

service provider to improve and ensure that such mistake do not recur.

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- A typical dissatisfied customer will tell an average of 14 others about a bad

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experience while she will tell only six about a satisfying experience with an

organization.

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- 70 per cent of customers who complain will do business with a company

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again if it quickly takes care of a service problem.

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ENABLES FOR THE GROWTH OF CRM

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The tremendous growth of interest and investment in CRM across the globe can be

attributed to the following macro ? environmental factors:

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(a) Emergence to service economy,

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(b) Emergence of market economy

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(d) Aging population of the economically advanced economies.

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Emergence of Service Economy

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The emergence of service economy is a global phenomenon. In the US, the service

sector accounts for over 75 per cent of GNP and employees 80 per cent of the work

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force. The service sector contribute to 60 ? 70 per cent of the GDP of economically

advanced nations of Western Europe, Canada and Japan. The increasing 17

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contribution of service sector is not limited to develop countries. Developing

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economies like China, Indonesia and Thailand employ about 40 per cent of the

work force in the service sector. In the year 2001, the service sector contributed to

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48 per cent of GDP in India, 54 per cent in Philippines and 33 per cent in China.

The average annual growth rate of the services during the decade of 1990s was 8

per cent in India, 9 per cent in China and 4.1 per cent in Philippines (Statistical

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Outline of India, 2002 ? 2003).

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Advanced countries progressed from agriculture to industrial and then to post ?

industrial economies. The shift from manufacturing to services was spread over a

few decades of the last century. However, in developing countries, the growth is

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lead by all three sectors of the economy in varying proportions.

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The growing importance of services resulted in greater customer orientation as

services are characterized by simultaneity / inseparability. It implies that the

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production and consumption of services are inseparable. In services, one needs to

be closed to customers to deliver the service offering. The factory is where the

customer is and services offered in real time. The customer perceives the production

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process as part of service consumption, not just the outcome of production process

as in traditional marketing of physical goods. Therefore, it is not surprising that

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service businesses like hotels, airlines, banking, financial services, telecom and

retailing where the early adopters of CRM.

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Emergence of Market Economy

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In addition to the shift towards service, there is a global emergence of the market

economy. The power is more to the market as compare to the controlled economy.

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Market regulation was in place all over the world including the US, Europe, USSR,

China and India. The 1990s witnessed acceleration in the deregulation of many

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large industries including banking, telecommunications, broadcasting and airlines

across the world. As a result, market ? orientation firms operating intensely

competitive market now takes decision that was once controlled by the government.

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The focus have shifted from capacity creation under control to the markets. Market

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? oriented economy necessitated a customer focus and boosted the importance of

CRM.

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Global Orientation of Businesses

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National boundaries are giving way to either a borderless world or atleast a regional

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world resulting in the emergence of trading blocks like North American Free Trade

Agreement (NAFTA), European Union and the Association of South ? East Asian

Nations (ASEAN). The abolishment of the General Agreement on Tariffs and Trade

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(GATT). And the emergence of World Trade Organization (WTO) helped create a

global orientation for business establishment. Increasing international trade became

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the growth engine for the global economy. Liberalisation of markets and trade

proved to be a far stronger growth engine. It has eased the entry into foreign

markets. Firms need stronger customer ? orientation to be able to tab opportunities

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in new markets while defending themselves in their home markets.

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Aging Population in Economically Developed Countries

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The economically advanced nations are witnessing an aging of their population. In

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2000, 12.6 per cent of the US population was 65 years of age or older. The

comparative figures for Sweden and Japan were 17.2 per cent and 17 per cent of

their respective population (Sheth and Mittal, 2004). This trend is visible in most

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part of Europe, except in Ireland (Leeflang and Raij, 1995). Aging of population

has been attributed to the combined effects of a slow down in birth rate and an

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increased in life expectancy. While an aging population creates new opportunities

for wellness, financial wellbeing, safety and security and recreation (Sheth and

Mittal, 2004), it has also slowed the markets for traditional goods and services

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designed for a younger population. Therefore, in these markets, growth is being

achieved by increasing the share of wallet` and not through growth of markets`

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driven by a growing population. Marketers are now forced to develop a deep

understanding of their existing customers and meet their ever changing needs

through suitable products and services. Indeed, most large companies, especially the

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services sector, wants to become One-Stop-Shop for the customers.

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After identifying and discussing the factors responsible for the growth of CRM

across the globe, we now evaluate the reasons as to why managing customer

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relationship has become critical for business.

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2. BRAND LOYALTY

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Loyalty is at the heart of equity and is one of important brand assets. Brand loyalty

is a conscious or unconscious decision expressed through intention or behavior to

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repurchase a brand continually. When the consumer buys with respect to product

features, price and convenience, with little concern to the brand there is likely little

equity. But, if the consumers prefer the brand even at the face of competitors with

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superior features and offers, then brand is said to have high brand equity. Loylaty

reflects the consumers attitude towards the brand, especially when there is a change,

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either in price or product features. As the brand loyalty increases, the vulnerability

of the customer base to competitive action gets reduced.

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THE STRATEGIC VALUE OF BRAND LOYALTY

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Reduced Marketing Costs

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Trade Leverage

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Brand Loyalty

Attracting New Customers

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Time to Respond to

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Competitive Threats

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As per Aaker`s point of view the above factors produce a strategic value to the

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organization by brand loyalty of customers.

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Reduced Marketing Cost

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Loyal customers minimize the cost of running business because the amount spent

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on getting new customers is far more than retaining present customers. The higher

the loyalty, the easier it is to keep customers happy. Loyal customer becomes an

advocate for the brand, without any incentive. Loyalty base of customers, act as a

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strong entry barrier for potential entrants by which an organization can minimize

the risk.

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Trade Leverage

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A brand having strong loyalty base force retailers to maintain adequate stock and

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allot enough shelf space to accommodate the brand. At the extreme, customer`s

shop choice depends on where their preferred brand is available. So, at the retail

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brands enjoy special recognition and treatment.

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Attracting New Customers

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Existing loyal customers help marketers to get more business through prospective

customers. They create awareness of the brand among friends and colleagues, who

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develop positive attitude towards the brand by actually seeing the brand in action.

Brand image is projected by these customers especially when the product requires

after sales service or, prospective customers require assurance of product

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performance.

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Time to Respond to the Competitive Threats

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Loyalty base also supports marketers against competitor`s innovation by providing
sufficient time for them to retaliate.

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STRATEGIES TO BUILD AND MAINTAIN LOYALTY

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Retaining the customers, keeping them happy, enhancing their satisfaction level is the

continuous endeavor of any organization as it cannot afford to miss any of the loyal

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customers. Ever changing Indian consumer, cut throat competition and emerging new

technologies are the thrown challenges to develop loyalty programmes. Some of the

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strategies that suit the Indian context are discussed below.

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Customer Relationship Management (CRM)

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In simple words, CRM is the process of acquiring, retaining and growing profitable

customers. It is not a mere technique, but a management culture to build and sustain

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an effective customer relationship. Organizations must significantly revamp their

traditional learning and knowledge management programs. The customer

relationship management model, with its customer-centric focus, places the

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customers needs first. IT involves three fundamental steps:

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1. Understanding customer completely

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2. Aligning organizational capability in order to better deliver what its

customers may perceive as high value.

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Facilitating the information available both inside and outside the organization.

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The result of successful implementation of CRM creates great value of marketers

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and customers which leads to mutual trust and loyalty. Following are the

advantages of it over traditional loyalty building methods:

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? Reduce advertising cost

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? Makes it easier to target specific customers by focusing on their needs

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? Allows organizations to complete for customers based on service, but not on

price

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? Prevents over spending on low-value clients or under spending on high-

values ones.

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In India the CRM model is widely used in manufacturing and service organizations

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as a brand loyalty tool.

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Brand Relationship Management (BRM)

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BRM is newly developed holistic approach to retain customers and create brand

loyalty. It stands for all activities linked with relational exchanges` and

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transactional exchanges`. It helps to establish, maintain, and develop the

relationship between a brand and its consumers. Its integrated effort continuously

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strengthens the relationship through interactive, individualized, and value added

contacts. This leads to a mutual exchange and fulfillment of promises in future. The

BRM process is explained diagrammatically below.

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BRM Process

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Trial

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Repeat

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Share of

Affinity

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Brand

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Brand

Purchase

requirement

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relationship

lo

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yalty

t

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BRM focuses on generating trials and repeat purchases, builds high share of

requirement (i.e. product`s market share for a specific consumer). This result in

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customer`s affinity towards the brand and builds brand relationship. The bond

between brand and customer becomes strong and thereby leads to mutual trust

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which eventually results in brand loyalty.

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Key steps to manage BRM

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? Identifying the key driving force of brand preference

? Estimating expected brand utility of consumers

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? Analysing the customer response for each market stimuli

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? Grouping target customers into actionable segments based on profitability,

usage and characteristics

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? Defining offers and corresponding value proposition that meets the

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identified need

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Impact of Brand Relationship Program on a Brand Perception

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Brand relationship program has a great impact on a brand`s perception in various

ways:

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? Improves customer perception of the brand

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? Gives an opportunity to better know the brand

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? Provides a chance to learn new things about the product category

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? Aids to select among brands in that category

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? Helps to discover new ways of consuming the product category All

these perceptional changes leads the customer towards brand loyalty.

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Integrating BRM with CRM

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The effectiveness of BRM depends on proper integration of BRM with CRM

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strategies. This leads to effective collection and utilization of customer information

resulting in maximum brand utility to consumers.

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Brand Loyalty Programs

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Loyalty programs are designed to optimize every customer contact by offering an

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incentive to his buying behavior. Though it varies from category to category,

today`s programs are mainly focused on this area. The main objective of these

programs is aimed at the highest end customer`s retention. Some loyalty programs

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are intended to achieve new customers and maximize the use of the brand.

Following are some of the popular loyalty programs designed for Indian consumers

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by different companies.

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A. Indian Club (From Tata Indica)

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Loyalty program includes 30,000-odd Indica customers from a client base of

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more than 1.35lakhs. These club members are provided with several benefits

such as preferential treatment and discount at retail showrooms of Titan,

Tanishq, hotels attached to the Taj Group and some restaurants.

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B. First Citizen Club (From Shopper's Stop)

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Shopper`s stop is one of the first major chains that has been working on ways to

manage its customer information for competitive advantage. It started First

Citizen Club` for regular visiting customers. Its major functions include

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customer information capture, intelligent warehousing and mining of transaction

behavior. It emerged successfully by generating sales and continuously adding

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more people to it.

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C. Book Reward Programs (From Crossword)

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Mumbai based chain of book stores runs this programs to increase the frequency

of regular customers. Crossword has developed a benefit system quite

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differently based on the points that members earn, which can be redeemed

against purchases. Members get benefit every month. The benefit could be a

free gift, a discount or an every month. The benefit could be a free gift, a

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discount or an event. The idea is that the customers have to come to the store to

pick up the gift.

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D. Taj Inner Circle Card (From Taj Hotels)

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Taj hotels provide both tangible and intangible benefits to their regular
customers in the form of discounts and image building.

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E. Jet Privilege Program (From Jet Airways)

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This program is to recognize the most loyal customers and also to focus on

customers who are not so frequent, but who at some point will be made most

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loyal. This program awards points to the customers for special discounts and

packages.

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F. Mobile Industry (From BPL & Orange)

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Unique features of this industry is built-in barriers to switching brands as

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changing the brand gives the inconvenience of changing the number. In this

industry, loyalty programs are designed more towards increasing a customers

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usage and their tenure by offering more discounts in shops and restaurants.

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G. Other Programs:

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a) Rebate Program: Awards gift certificates on reaching a spending

threshold. The reward can motivate incremental purchases or increase in
store traffic.

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b) Partnership Program: Rewards are given to partner company`s

customers with an expectation that they may likely become customer in

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future.

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c) Affinity Program: It offers additional information, value added benefits

to suit specific customer life styles. This helps customer to know more

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about the latest products and to build long lasting relationships.

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MEASUREMENT OF BRAND LOYALTY

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The criteria and factors considered for loyalty measurements is different at each

level of loyalty as the degree of loyalty and nature of relationship changes. In the

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bottom levels loyalty is not recognizable. Loyalty measurement at this level is in

terms of sales turnover, product`s profit margins, price attractiveness and price

sensitivity. These are the major factors for purchase and repurchase behavior of

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customers at these levels.

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At the middle level, loyalty is measured through satisfaction level. Total spending

on brand, liking ? which is scaled in variety of ways like respect, friendship, trust

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etc, and the reasons attributed. Another important measurement for customers

commitment is their involvement in spreading good word of mouth and number of

people to whom they refer the brand. Measurement tools include structured

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questionnaire (both closed-end, open ?end), likert scale, semantic differential scale,

attitude rating scales, projective techniques and indepth interviews.

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THE LADDER OF LOYALTY

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The ladder of loyalty shows the different stages through which a prospect becomes

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a customer, a client and finally a partner.

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Prospect: The prospect is an individual in a retail market or an organization in the

business market, which fulfils the requirement of the marketer`s definition of target.

For example, a cellular service provider may segment the market and target

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executives in blue chip companies with a special offer.

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Partner

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Advocate

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Supporter

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Client

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Customer

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Prospect

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Customer: The prospect becomes a customer when s/he gets attracted by the

offering of the marketer and buys the product / service.

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Client: A customer becomes a client when s/he purchases the product or service

more than once. While a customer may make the initial purchase as a trial or test,

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the client is one who does a repeat purchase. It is likely that the trial was a

satisfactory experience for the client.

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In several buying situation, customers becomes client due to the nature of the

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product or service. For example, the purchase of a durable product like a PC, TV or

Car result in the customer becoming a client of the associated services like

servicing. Some services like banking, insurance, club, fixed line telephone services

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etc., are membership` services which makes it difficult, if not impossible, for

customers to switch. Prospects may spend a lot of time and efforts in searching for

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information, making comparisons and then making the selection. After all the

efforts, once we open an account, take an insurance policy / a club membership / a

telecom service is brought, the customer continues patronizing the service provider.

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It does not mean that this customer is a long term loyal client. Many a time it is the

sheer inertia that makes customer continue in a relationship. Therefore in this

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categories, the customer and the organization are likely to have an association of a

longer duration.

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However, in many buying situation like retailing, hospitality, airlines or fast moving

consumer goods, customer can switch after trial, i.e. testing it and then decide to use

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a competitor`s offering. The nature of the product or service does not ensure repeat

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purchase. It is a customer`s satisfaction with the first purchase and consumption that

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determine repurchase.

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Customers can also become client when organization cross ? sell multiple products

to an existing customer. A good example of such a firm is Wells Fargo, a leading

financial services firm in the US. On an average this firm sells more than four of its

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services to each customer (more than twice the industry average). This has ensured

that customers do not switch as frequently from this firm, increasing its profitability

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as whole.

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Supporter: A client becomes a supporter when he satisfies with the offering and

recommends it to his friend, relatives and acquaintances. This positive Word ? Of ?

Mouth (WOM) has tremendous positive impact as it helps the company get new

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customer. WOM is a most influential source of information in converting prospects

into customer.

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Advocate: An advocate is a supporter who, in addition to referrals that gives

increases sales, proactively works with the company to improve its product and

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services. While developing new products software companies regularly depend on

the feedback from the lead users of their clients during the Beta test phase. So is a

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case in new product development situation in several industrial firms, who set up

the prototype in their client`s premises for usage and feedback, which helps in

improvement. In these situation, the level of interaction between the customer and

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the company is at a much higher plane. There is sharing of vital information and the

comfort level as well as the confidence between the parties is high.

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Partner: An advocate becomes a partner when they become actively involve in the

decisions of the company. Any relationship that attempts to develop customer value

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through partnering activities is likely to create greater bonding between customers

and marketers. In many cases, there are joint investments resulting in a structural

bonding. Examples include the kind of relationship that exist between Procter and

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Gamble and Wal Mart, the worlds largest retailers. This relationship is

characterized by genuine partnership. Wal Mart shares the scanner data from its

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check out counters in its over 4,500 stores through satellite. This information gives

the movement of P & G`s products, the status of stocks in its outlets and helps the

joint teams comprising of P&G and Wal Mart executives to plan replenishments. It

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helps P&G plan its production, better management of its production runs and keep

its inventories low as it no longer depends on sales forecasts but actual sales data.

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Overall, it reduces the selling costs to P&G. Wal Mart gains as it does not have to

keep inventories, gets faster replenishments, incurs low cost and is able to pass on

the saving to the customers, thus, reinforcing its image of Everyday Low Prices`

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among its customers.

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3. CRM SUCCESS FACTORS

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While clear intention fuels the power of CRM, there are several other success factors to

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consider. We will focus on five of the most important here. Organizations that

implements CRM with a strong return on investment share these characteristics.

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1. Strong internal partnership around the CRM strategy. We said earlier

that CRM is a way of doing business that touches all areas of your

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organization. This means that you and your management peers need to firm

strong internal partnerships around CRM. If you and your organization are

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early on the road to CRM implementation, now is the time to bring your

CRM needs to the table, and to be open to listening to the CRM needs of the

other areas. You may find that you have requirements that are, atleast

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potentially, in conflict. Resist the temptation to go to the war for what you

need.

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If your organization has gone off the partnership road with CRM, then now

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is the time to come back together and rebuild partnership with the area that

is currently championing CRM. Let them know that you appreciate what

they have done. Let them know what data you have to offer and help them

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understand how you plan to use the data you request from them.

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2. Employees at all levels and all areas accurately collect information for

the CRM system. Employees are most likely to comply appropriately with

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your CRM system when they understand what information is to be capture

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and why it is important, they are also more likely to trust and use CRM data

when they know how and why it was collected.

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3. CRM tools are customer ? and employee ? friendly. CRM tools should be

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integrated into your systems as seamlessly as possible, making them a

natural part of the customer service interaction. A major manufacturer of

speciality pet foods redesigned the pop ? up screens for its toll ? free

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consumer phone line. In the original design, the final pop-up screen

prompted the representative to ask the caller`s name and address. Yet,

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representatives had found that it was easier and felt more natural to ask,

What`s your name? and Where are you calling from? and What`s

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your pet`s name? at the start of the call.

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4. Report out only the data you use, and use a data you report. Just

because your CRM tool can run a report doesn`t mean it should. Refer back

to your CRM strategy, and then run the data you will actually use. And

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share that data with your team.

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5. Don't go high ? tech when low ? tech will do. At Harley ? Davidson

outside of Milwaukee, WI during the summer they often leave open the big

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metal doors to the manufacturing facility to let in any breeze and the cooler

evening air. Unfortunately, open doors occasionally let in other things,

including skunks. A team met to consider the problem and possible

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solutions. After discussing the pros and cons of screens, half-doors, or

keeping the doors shut, they came upon ideal solution. When a skunk

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wanders in, just leave it alone and wait till it wanders back out. Skunks may

be Harley fans, but they never stay long.

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Organizations that successfully implement their CRM look for the simplest

solution when implementing their CRM strategy.

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QUESTIONS FOR DICCUSSION

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1. The strength of the CRM depends on clarity of what you want to accomplish

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2. The CRM tools have to be simple that allow you to gather the information you

need in the easiest way for both you and your customer

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4. THE CUSTOMER SERVICE / SALES PROFILE

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Now you understand that the power of CRM lies in its ability to help you create,

maintain, and expand customer relationship. You`re excited and ready to begin

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delving into the process of creating your own CRM strategy, whether at the

organization level or as it applies to your specific area or department. Before you do

that, we`d like you to take a more in ? depth look at who your current customers are

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and what their relationships with you look like. Our model, the Customer Service /

Sales Profile, will help you to do three things.

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First, it will show you what kind of customer relationships you`re trying to create. Is

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your success based in initial, stand-alone transactions? Or does the nature of your

product or service put customers in partnership with you over longer periods of

time? How important is it for you to have satisfied customers acting as a word ? of

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? mouth advocates for you in the market place

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Second, the Customer Service / Sales Profile will help you identify strengths in

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your current CRM practices. Even in cases where there`s no formal CRM strategy,

if you`re still in business, you must be doing some thing right, may be several or

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many things. Knowing what right practices have evolved naturally will help you

create the greatest possible improvement with the least amount of expense.

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Third, because this process creates a visual image of your customer relationship,
you will find it helpful in communicating to others throughout the organization.
Knowing your current profile and the desired profile will naturally help you focus

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your energy and attention.

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Why call it the Customer Service / Sales Profile?

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We call this model the Customer Service / Sales Profile because every business

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activity is ultimately justified by half its serves the customer. Even if you and your

team never see cash ? paying external customer, the contribution you make must

have some positive impact on those external customer relationship or else you

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should strongly question its value and purpose. We use the phrase Service /

Sales to remind us of three important rules.

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Truth # 1: Sales do not equal relationships. Way back in 1983, Theodore Levitt

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wrote an article for the Harvard Business Review titled After the Sale Is Over. In

it he explained that the sale is just the beginning of the relationship with your

customer ? a relationship more akin to a marriage then to a one ? night stand. And

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consultants, practitioners, researchers, and authors have been building on this theme

ever since.

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Yes, the sale is a very important point in customer relationship. However, it is

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bracketed by the quality of service you are willing to offer, able to deliver, and

credited with providing to your customers.

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Truth # 2: Service extends beyond the buyer. Whether you`re selling in ? home

plumbing repair or pace makers or e-business solutions, creating a customer

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relationship, and extending the opportunities you have to do business together mean

more than wooing the individual who writes the check or sign the contract. You

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need to consider all the people who touch or who are touched by your product or

service.

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Truth # 3: Service and sales are on the same team. All too often, we are called

into sales organizations or customer service departments that claim that everything

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would be better if those other people, in service or sales would just straighten

up and get their act together.

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The sales people lament that the customer service people just complain, complain,

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and complain about pesky details like a few over ? promises or a couple of tight

delivery dead lines. Don`t they know that we`ve got to promise those things to

get the sale?

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The customer service people roll their eyes at visions of golf club-swinging sales

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types teeing off with unrealistic promises and assurances that the customer

service team will be happy to move mountains for you. Don`t they know we

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have policies? If we did that for this customer, we`d have to make the same

exception for every customer.

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The truth is that to win the game of business, sales and service have to be plain on

the same team. The phrase Service / Sales can serve as a reminder for both groups

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that you win only when you work together.

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The Three Levels of Service / Sales

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There are three service / sales levels to the Customer Service / Sales Profile model

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Level 3:

Customer Advocates

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..........................................

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Level 2:

Repeat Customers

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..........................................

Level 1:

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Initial Transactions

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Figure 1.7 The three service / sales levels

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Level 1 is initial transactions. At this level you are focused on discrete, initial

interactions or stand-alone sales. This is the foundation for every business or

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organization. Yet, we know that the more money, time, and energy you must invest

in getting customers to come to you in the first place, the harder it is to be profitable

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just working at this level. As we noted in Chapter 1, it`s not unusual for customers

to actually cost you money the first time they do business with you. Just consider

the acquisition costs for you customers.

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As you can see, in order for our Nature Retreat Center to be profitability at level 1,
they need to:

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? Identify customers at risk of leaving, never to return, and find our how they

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can woo them back.

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? Look for ways to teach new customers more about what the Nature Retreat

Center offers and how it works so that there are fewer avoidable service
issues.

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? Give staff tools and training on ways to turn the interaction into revenue ?

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generating opportunities while at the same time making guests feel well
served.

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It will be important for the Nature Retreat Center to focus on this improvement.

When initial transactions run smoothly, with the minimum of fuss or error, it

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provides a strong foundation for future business.

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Level 2 represents repeat customers. At this level you`re focus on getting customers

to return for a second, third or fourth time. Customers may come back for the same

purchase ? like the loyal Carivou Coffee customer, cordially known by the staff as

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the extra large, skil latte with Carivou cookie. Or the customer may turn to you

for a variety of products and services ? like a car insurance customers who comes

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back to a agent for home owner`s, this ability, and life insurance.

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Repeat customers develop greater economy and emotional ties with you. And they

bring with them and expectation that you will value those ties. For example, the

Caribou Coffee customer may expect you to save the last Carivou cookie for him.

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And the insurance customer will look for her discount for having car, home, and life

insurance with the same provider.

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Yours CRM strategy will tell your team how much importance to place on repeat

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customers. CRM tools will help your team identify this precious members of your

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customer mix and prompt team members to notice and value the extended

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relationship with you.

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The top level of model is customer advocates. Level 3 represent those customers

who are not just satisfied and willing to do business with you again. These

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customers actively tell others about their positive experience they spread the good

word. You might even consider them to be active participants on your marketing

team.

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As you can see, each level builds upon the level before without quality initial

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transactions, customers won`t want to do business with you again. And it`s the

customer who seems himself or herself in a positive relationship with you who can

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provide the strongest advocacy for you and your product and services.

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The Shape of your Custom Service/ Sales Profile

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The Shape of your Customer Services / Sales Profile reflects the relationship among

this three levels. It is driven by the nature of the product or service you offer, the

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expectation of your customer base, and the forces of market competition.

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There are three basic Customer Service / Sales Profiles: The Pyramid, the Hourglass

and the Hexagon.

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The Pyramid Profile

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The Pyramid is the conventional way to see the relationship among the three levels.

It applies to the majority of businesses. Consider a retail department store, such as

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Minneapolis ? based Target Stores. Each days hundreds of customers walk through

the doors of any one Target location. Still more customers shop online at

Target.com. Those customers represent the base level of initial level. The

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percentage of those customers who are loyal to target, who regularly seek Target in

preference to its competitors, make a level 2. At the top are those customers who

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actively send their friends, family members, and even business associates to Target.

They tell positive stories about staff and service.

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Level 3

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Customer

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Advocate

s

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Level 2

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Repeat

Customers

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Level 1

Initial

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Transactions

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As you might imagine not every pyramid looks like a perfect isosceles triangle. For

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example, in some business model, there`s a very strong emphasis on repeat

customers but less on customer advocates. As one sales person for a large ? scale

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computer application told us, Yes, I think my customers are happy enough to

keep business with me. And I`m working very hard to keep them happy. But, no. I

wouldn`t want to put my existing customers in a room with my prospects.

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If you don`t trust your repeat customers to help you sell a prospect, then you

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have pyramid with a broad middle and a small top. It might be tempting to tell this

sales professional to go out and create more advocates. And that would be a

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dangerous shift if it meant losing focus on the repeat customer group. In a Pyramid

Profile, customer advocates grow directly out of exceptionally well ? satisfied

repeat customers.

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The Hourglass Profile

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The Hourglass Profile is less common. In the Hourglass, you have a broad base of

initial transaction, only a few of which become repeat customers. However, you

seek to create customer advocate from as many of those initial transaction as

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possible.

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The Customers Service / Sales Profile

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Level 3

Customer

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Advocate

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Level 1
Repeat

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Customers

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Level 1

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Initial

Transactions

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Consider the relationship between a real ? estate agent and her customer. Diane, and

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agent in the business for over a 15 years, explains that she sometimes gets a second

sale, but rarely a third from most of a customers. I get a second sale where the

initial house is their starter home`. After two or five years they are ready to move

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up. Many of my clients are selling because they are moving out of the area. I don`t

get a second chance with them.

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Yet Diane`s business is booming. Her company has recognized her as a top

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performer for several years in a row. I think my secret is really no secret. My

clients are my biggest sales force. They are constantly recommending me to people

they know who are buying or selling a home.

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And Hourglass is most stable when it has a strong base of initial transaction and

those transactions are handle in such a superior way that customers are eager to tell

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others about their experience. When this happens, the Profile creates its own self-

renewing energy. Diane, for example, does put considerable time and effort into

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maintaining contract with past client, sending them calendars and other reminders,

and keeping a name and phone number easily accessible so client who have an

inclination to recommend her will find it easy to do so. But Diane is a first to admit

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that this process work with more ease and flow then in the yearly years of business,

when she was less sure of herself and less sure about satisfying her clients.

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The Hexagon Profile

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In the Hexagon Profile describe a business that is very stable. It has all the repeat

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business it can handle or wants, so it feels little motivation to actively seek for level

3, customer advocates. It also feel no strong motivation to focus on initial

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transaction, since there are already plenty of repeat customers: for the movement.

This is a vulnerable profile. Should anything disrupt the core of repeat customers,

the business will be hard-pressed to replace them.

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Level 3

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Customer

Advocates

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Level 2

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Repeat

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Customers

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Level 1

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Initial

Transactions

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The Hexagon Profile can self ? destruct when supply and demand are no longer in

balance and no longer working in your favor. We watch a small advertising agency

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go under because it was operating under this profile. Secure with its three major

clients and a study mix of small filler jobs, the team focused on doing the work.

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They paid little attention to growing their filler jobs into something more, or to

get in their name out to encourage new client, or even to inviting their current

clients to recommend them. When first one and then two of the core clients move

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their business, the team couldn`t replace them quickly enough to stay viable. I

haven`t done marketing in so long. I don`t know where to begin, one owner sighed.

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How much easier it would have been if they`d asked for letters of recommendation

and referrals months before, when their core customers were active and satisfied.

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Pitfalls of the Customer Service / Sales Profile

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There are two common pitfalls that cause individuals and department to become

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misaligned around their Customer Service / Sales Profile

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1. Focusing on the top. It`s personally and professionally satisfying to have

customer advocate. Human nature yearns for their positive affirmation.

Beware of taking their praise so much to heart that you begin to think that

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anyone who isn`t and advocate is just too picky and hard to please.

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2. Focusing on the Front door. Initial transaction are critical, but they`re only

one step in the customer relationship. When a rush of activity comes... and

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especially when it stays... it`s easy to get caught up in processing customers

through faster and faster ? Don`t worry if it`s not perfect, someone else is

waiting to be served! yet when the rush is over and you`re waiting in vain

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for the next new customer, all those initial transaction will be looking for

someone else, someone more service - oriented, for their next transaction.

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CRM and your Profile

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So what`s your Customer Service / Sales Profile? Are you operating as a pyramid?

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As an Hourglass? Or as a Hexagons? It`s important to know what kind of customer

relationship you`ve being creating so that you can be thoughtful and strategic in

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choosing what kind of customer relationship you want to create from this point

forward.

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What`s work about your current profile? And what would you like to change? The

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answer to these questions will help to shape your CRM strategy. You will find that

it`s easier to align your team-and your organization-around a clear and consistent

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CRM strategy if you all share a common vision of your Customer Service / Sales

Profile.

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QUESTIONS FOR DISCUSSIONS

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1. What is emphasis in customer relationship management? Is it on creating

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initial or stand-alone transactions (Level 1)? Is it repeat customers (Level

2)? or customers advocates ( Level #) drive your success?

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2. The Hourglass profile focus is on turning customers into advocates based on

their initial experience

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3. The pyramid profile is the most common. Intial transactions lead naturally

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to repeat business and a percentage of those repeat customers move into

advocacy

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5. SERVICE - LEVEL AGREEMENTS (SLA)

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It is just a new-age term for the age- old telecom contract, writes Julie Bort in her

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article, SLA Savvy, Five Secrets for Making Sure You Get the Most from Your

Service-Level Agreements (Network World, September 27, 1999). And she`s right.

However,

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today

service-level

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agreements

cover

much

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more

than

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telecommunications. SLAs can also be found in IT (information technology), ASP

(application service providers), and ISP (Internet service providers) agreements.

And, whether you enter into a formal contract or use the concept in informal

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contract or use the concept in informal partnership discussion, understanding SLAs

can help you ensure that everyone in your team is on board and contributing to your

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customer relationship management strategy.

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Service-Level Agreements Defined

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In the words of Joel Snyder of Network World, and SLA is really just a

description of the service you`ve bought and paid for... While Joel is literally

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correct, and SLA implies- and spells out in detail ? something more. According to

the ASP Industry Colsortium`s Buyers Guide to Service ? Level Agreement and

SLA should include:

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? The purpose of the SLA,

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? Description of service,

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? Duration of service,

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? Installation time table,

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? Payment terms,

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? Termination conditions, and

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? Legal issues such as warranties, indemnities,

? And limitation of liability.

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The SLA, then, is a contract between the service provider and the customer ?

typically a business or organization, rather than an individual consumer.

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Three keys to effective SLAs

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Whether you`re the service provider or the customer a well thought out and clearly

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executed SLA can strengthen your relationship by setting reasonable expectation,

clear measures of performance, and rewards when performance is excellence or

remuneration if it falls short.

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To see this more clearly, let`s consider a typical consumer agreement for telephone

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service compared with SLA between a telecom provider and a call center. Are

examples look from the customers point of view, but feel free to imagine yourself

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on either side of these agreement. Consider the role the agreement does or does not

play in keeping the customer loyal.

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Put on your consumer hat for a movement. As a residential customer, you have a

service agreement with your local telecom provider. You agree to pay a certain

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amount per month and the provider agrees to give you a dial tone. You may also

contract with the same provider for additional services such as caller id, last call

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return, phone or line repair and the like. You decide to add a second line for your

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new home office. You call and to make and appointment for line installation. Our

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technician will be there between 8 and noon.

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You don`t want to take the entire morning off work. Isn`t a more definite

appointment available?

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No. We`ll call you when the technician is on the way. That`s the best we can do.

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So you take the morning off work, wait for the tech...and wait...and wait. At 11.50,

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you call the dispatcher for the status check....again.

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Oh, the other job ran long. The tech won`t be able to make it. We`ll have to

reschedule. How about 8.00a.m. to noon, a week form today?

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You may get angry, but short of switching service providers, there`s not much you

can do.

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Now, put on your business hat. Your organization also contracts for telephone

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services. Let`s imagine, for example, that you have a customer contact center where

hundred and five service representative handle incoming customer calls 24 hours a

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day, 7 days a week. Its imperative for your business that customers have 24/7

access, so you need a very high level of performance from your telecom provider.

So, you establish service-level agreement.

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In it, you detail accountability. Is your provider just bringing a dial tone to your

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internal telecommunication system? Or is your provider responsible for ensuring 52

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that your internal telecommunication system is functioning correctly? What about

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third ? party software or hardware? Will your provider take responsibility for

telephone lines installed by another vendor? And what will the provider be

responsible for if fire, flood, or an act of God interrupts your service?

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Next, you detail performance level. What amount of time, if any, is it acceptable for

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your phone connection to be down? How quickly will new lines be installed

when you choose to expand your service? Every key aspect of performances

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covered, in a quantifiable way, so you and the service provider know when the

performance level is met and when performance is unsatisfactory.

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Finally, you detail in your SLA remuneration. Remuneration is what the service

provider promises to give you if it fails to meet performance level. Usually, it`s a

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percentage of the fee for service. This part of the SLA can also include rewards if

the provider gives an exceptional level of service performance.

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You want to bring in three new phone lines. You call and make an appointment. In

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accordance with your SLA, installing new lines of this type may take as long as 48

hours. Because the sooner the lines are in, the more the provider meets, the

company has an intensive to do a speedy job-and it does, getting your new lines up

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and running less than 24 hours after your call.

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As a customer, its easy to see how the SLA benefits you. Thinking of the consumer

example, you may even wish you had an SLA to hold over the head of your local

telecom service provider. However, from the service provider`s point of view, the

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SLA is more than a big stick wielded by customers to get performance.

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Remember our definition of customer relationship management: a comprehensive

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approach for creating, maintaining, and expanding customer relationships. The

crafting of the SLA provided and opportunity to create a customer relationship with

reasonable and achievable expectation. It was a time for engaging a customer in

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creation of the service plan that works for both the provider and the receiver. Clear

expectation for both the everyday event of the service relationship, such as

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expanding service, and fall backs and compensation for those times when, despite

best efforts, things didn`t work as we`d hope, also keep the customer relationship on

an even keel.

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Creating an SLA

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As a manager in promoting CRM, you may be on the provider or the receiver side

of the SLA. Either way, the process for creating your service-level agreement

remains the same, especially when the services you`re contracting are tools to

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support your CRM strategy

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There are six steps to the SLA process map.

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Step 1 in the process is to review your CRM strategy.

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Because SLAs are traditionally focused on who does what and when, it`s critical to

begin with why any of us are doing any of it. The key focus should always be to

create and retain customers

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With a clear understanding of what you want to accomplish you can move to Step

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2: meet with the other party to define requirements and expectations. It`s 54

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important to be extremely clear in your definitions because you and the other party

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whether a service provider or a customer - may have different worldviews.

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Don`t leave any expectation or requirement unstated. Walk together through the

service process. What will it look like, feel like, sound like, when everything is

going well? What types issues or service interruption might use anticipate and how

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should those be handled? Managing Relationship Through Conflict, for more on

handling possible service problems. When you think you`ve defined the key

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performance requirement and expectation, take again with your CRM strategy. Will

this performance truly help you achieve your CRM goals?

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When both sides have agreed upon the key performance and expectations, you`re

ready for Step 3: Defined performance measures. How will you determine if the

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agreed-upon performance level is being met? Measures should be timely and

accurate, without placing any undue burden on anyone.

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If your SLA concerns and application, you may measure performance with an

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application monitoring tools. This software solution can detect and record

problems, identify slow downs, and run in ? depth reports on transaction and

response time. If human performance is at issue, you may need both quantitative

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and qualitative measures. Again, compare your performance measures with your

CRM strategy. Are your measures getting at the performance elements that most

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promote your CRM approach?

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Step 4. Define rewards and penalties, goes hand in hand with Step 3. The

performance measures means little until its use to give rewards or to make

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corrections. Traditional SLAs focus on remuneration, on what the service provider

will give back if performance falls short. Little, if any, attention is given to rewards

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for great performance.

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The reward is, they get to keep the contract, one manager told us. Why should
I give them extra if they do what they said they would do?

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Good point but what about those times when the service provider goes above and

beyond? You may want to be more creative in defining rewards. For example, you

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could ask for a letter of acknowledgement and praise that you can share with the

service team... or even use in marketing. The key is taking this opportunities to

define ways to draw customer attention to superior performance.

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Before leaving Step 4, compare your remuneration and reward agreement with your

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CRM strategy. Are you penalizing any behaviour that actually promote your CRM

strategy? Are you rewarding any behaviour that doesn`t serve your CRM strategy?

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Now you`re ready for implementation, Step 5, monitor performance. Here`s where

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the rubber meets the road. You`ve define expectation and requirements, set up

measures, and decided what you`re going to do-to reward of to correct ? based on

the results. Put the process into motion and watch it go.

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Keep your CRM strategy in mind as you review your monitoring efforts. Are you

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the monitoring police or the performance partner? We believe that your monitoring

process can and should actually model the types of relationship you wish to

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promote with your customers.

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The final Step 6, is to review the SLA regularly, at least annually. The first year, we

recommend that you review the agreement even more often, so you can make any

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needed adjustment in expectation and requirement. Sometimes it`s only after an

SLA is in place that you realize that a measure is sending performance in the wrong

direction or that your monitoring process is too cumbersome to provide timely

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information.

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Equally important in this step is realizing that your CRM strategy may change over

time, so you`ll need to adjust your SLA to stay current with it. The following box

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summarizes the step we`ve just discussed.

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Using SLAs to support Internal Customer Relationship

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Used with an internal customer relationship, SLAs can help you achieve two of the

CRM success factors listed in chapter 1.

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1. Builds strong internal partnerships around the CRM strategy

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2. Employees at all levels and all areas accurately correct information for the

CRM system.

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As stated earlier , CRM is everyone`s responsibility CRM does not belong just to

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sale and marketing. It is not the sole responsibility of the customer service group.

Nor is it the brain child of the information technology team.... CRM must be the

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way of doing business that touches all areas. Internal SLAs can help other area

know exactly how they support CRM.

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For example, imagine that you`re the manager of the customer service group. Your

relationship to your organization`s CRM strategy seems pretty clear. Your group is

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in contact with customers every day, using CRM tool to track each transaction, spot

new trends as customer expectation change, and identify opportunities to expand

the service relationship.

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In addition to your contact with external customer, your group has internal service

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relationship with many other areas, including the warehouse. After reading this

chapter you decide to create an SLA with this group as internal partners, you

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recognized that the agreement will involve performance ? level expectations on

both sides. You`ll bring your concerns and invite your counter parts to bring theirs.

You`re there to discuss what you expect and what you need, so that at the end of the

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day external customers are well served. CRM, serving customers so well that they

want to continue to do business with you and to find new ways to do business with

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you, is a touch stone for a good agreement.

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For example, one of Kristi Anderson`s clients recently installed a new CRM

software to track customer problems. Customers service representative where

instructed to open a ticket for each customer incident. Some incidents were complex

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and needed to be escalated to the engineering group for resolution. The engineers

were good about acting to resolve the issue, but lousy about recording their actions

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and closing out the trouble ticket; it just seemed like unnecessary extra work to

them. The manager of the customer service group met with the engineering team.

Without using the term service-level agreement, he took them to the process

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during the meeting. Once they understood why the information on the trouble ticket

was important and how it was used, they were much more willing to complete the

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online forms. In return they asked that some of the firms be simplified and that the

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groups agree on some common short hand ways of entering information. Recent

monitoring shows that the engineers are following through on their performance

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commitment. The internal partnership between engineering and customer service is

stronger than ever.

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Your internal service ? level agreement may not have the financial rewards or

remuneration however, you can be creative. May be you`ll decide to reward

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superior performance on either side by hosting a pizza party in appreciation.

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Making SLAs Work

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Ideally, service ? level agreement are a way to ensure that a performance enhances

customer relationship. But SLAs aren`t a substitute for the ongoing, day ? today

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work of uncovering what a customer expect and need, and searching for new ways

to provide it to them.

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Service ? level agreement don`t work when:

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? Compliance to the letter of the law in the agreement means more than

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serving the customer.

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? Customer needs an expectation change, but his SLA doesn`t.

? Penalties are ignored or seen as a cost of doing business

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? Superiors performance isn`t recognized and acknowledge in a meaningful

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way.

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Make sure that your formal and informal SLAs don`t fall into one of these

performance traps.

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The SLA model ?defining accountability, performance levels, and reward and

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remuneration-is a powerful tool for your customer relationship management efforts.

We encourage you to take the SLA model and use it with your business-to-business

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customers, your consumer customers, and your internal customers.

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DISCUSSION ISSUES

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1. What is the relationship approach to business?

2. What are the ingredients of a CRM strategy?

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3. What issues should a CRM strategy try to answer?

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4. A CRM strategy is a paradigm shift in the way we conduct business. Comment

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5. What steps can a company take to move customers up the loyalty ladder?

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6. Where is your customer relationship emphasis? Is it on creating initial or stand-

alone transactions (Level 1)? Is it repeat customer (Level 2)? Or do customer

advocates (Level 3) drive your success?

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1. CRM in Marketing

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The concept of managing relationships with customers is not new.

Companies have been interfacing with customers since the beginning of

trade. However, the focus has always been to sell the products or services,

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as opposed to focusing on Customer Retention. Competition, driven by

globalization and the Internet, has changed the face of business.

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Customers now have a variety of choices and, most importantly, they are

becoming far more knowledgeable and demanding. The power has truly

shifted to the customer. With this scenario, most companies realize that

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they need to treat their customers with more care. Companies are now

desperately searching for different ways to manage customer relationships

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effectively, not only to acquire new customers, but also to retain the

existing ones. According to a Harvard Business Review Study, some

companies can boost their profits by almost 100% by retaining just 5% or

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more of their existing customers.

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CRM: A Business Strategy for growth

CRM is not a product or service; it is an overall business strategy that enables

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companies to manage customer relationships effectively. From the business

perspective, it provides an integrated view of a company's customers to everyone in the

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organization so that the customer can be serviced effectively. For example, if marketing

runs an outbound campaign, all the information about the customers and the program

should be retained for the sales people to follow up, the customer service people to

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answer any queries, and technical support to provide any field support. The idea is to

have the same information shareable with all in the company.

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This will enable the company to present a uniform face to its customers when called

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upon to serve their needs. Such a CRM strategy also implies that the enterprise is

customer-centric.

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Customer relationship management (CRM) Defined

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CRM is a discipline as well as a set of discrete software and technologies that focus

on automating and improving the business processes associated with managing

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customer relationships in the areas of sales, marketing, customer service and

support. CRM applications not only facilitate multiple business functions but also

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coordinate multiple channels of communication with the customer - face to face,

call centre and web. CRM covers methods and technologies used by companies to

manage their relationships with clients. Information stored on existing customers

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(and potential customers) is analyzed and used to this end. Automated CRM

processes are often used to generate automatic personalized marketing based on the

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customer information stored in the system.

Implementing CRM

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Customer relationship management is a corporate level strategy, focusing on

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creating and maintaining relationships with customers. Several commercial CRM

software packages are available which vary in their approach to CRM. However,

CRM is not a technology itself, but rather a holistic approach to an organisation's

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philosophy, placing the emphasis firmly on the customer. CRM governs an

organization's philosophy at all levels, including policies and processes, front of

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house customer service, employee training, marketing, systems and information

management. CRM systems are integrated end-to-end across marketing, sales, and

customer service

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A CRM system should-

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? Identify factors important to clients

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? Promote a customer-oriented philosophy

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? Adopt customer-based measures

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Develop end-to-end processes to serve customers

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? Provide successful customer support

? Handle customer complaints

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? Track all aspects of sales

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Uses of CRM

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In its broadest sense, CRM covers all interaction and business with customers. A

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good CRM program allows a business to acquire customers, provide customer

services and retain valued customers.

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Customer services can be improved by:

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? Providing online access to product information and technical assistance

around the clock

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? Identifying what customers value and devising appropriate service strategies

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for each customer

? Providing mechanisms for managing and scheduling follow-up sales calls

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? Tracking all contacts with a customer

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? Identifying potential problems before they occur

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? Providing a user-friendly mechanism for registering customer complaints

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? Providing a mechanism for handling problems and complaints

? Providing a mechanism for correcting service deficiencies

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? Storing customer interests in order to target customers selectively

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? Providing mechanisms for managing and scheduling maintenance, repair,

and on-going support

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Business Objectives of CRM

CRM applications, often used in combination with data warehousing, E-commerce

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applications, and call centers, allow companies to gather and access information

about customers' buying histories, preferences, complaints, and other data so they

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can better anticipate what customers are looking for. The other business objectives

include:

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? Increased efficiency through automation

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? The ability to provide faster response to customer inquiries

? Having a deeper knowledge of customer needs

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? Generating more marketing or cross-selling opportunities

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? Better information for better management

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? Reduced cost of sales and increased productivity of Sales Representatives

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? Receiving customer feedback that leads to new and improved products or

services

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? Conducting more one-to-one marketing

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Essence of a CRM solution

In many companies, sales, marketing and customer service/support organizations

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work as decentralized functions. This forces customers to run from pillar to post

when trying to meet their demands, creating a good deal of dissatisfaction. CRM

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provides a common platform for customer communication and interaction. The use

of CRM applications can lead to improved customer responsiveness and a

comprehensive view of the entire Customer Life Cycle. While CRM applications

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provide the framework for executing the best practices in customer-facing activities,

ERP provides the backbone, resources and operational applications to make

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organizations more efficient in achieving these goals. CRM also acts as an enabler

for e-business by developing web-based collaborations between the company, its 64

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suppliers, partners and customers. It can extend the traditional channels of

interaction such as direct sales force or tele-business to the Web by providing a

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framework for managing the interactions and transactions. It also enables the

customers to purchase products or services on-line and receive web-based services

and support; with everything personalized to the individual customer.

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CRM Applications

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The genesis of CRM is Sales Force Automation (SFA). Current CRM applications

are a convergence of functional components such as sales, marketing, and customer

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service, advanced technologies & communication channels.

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Sales Applications - The thrust of sales applications is automating the fundamental

activities of sales professionals. Common applications include:

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? Calendar and scheduling

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? Contact and account management

? Compensation

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? Opportunity and pipeline management

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? Sales forecasting

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? Proposal generation and management

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? Pricing

? Territory assignment and management

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? Expense Reporting

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Marketing Applications - Marketing Applications form the newest breed of

applications in the CRM space. These applications complement sales

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applications and provide certain capabilities unique to marketing.

Common applications include:

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? Web-based/traditional marketing campaign planning, execution and analysis

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? Collateral generation and marketing materials management

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? Prospect list generation and management

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? Budgeting and forecasting

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? A marketing encyclopedia (a repository of product, pricing and competitive

information)

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? Lead tracking, distribution and management

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Marketing applications primarily aim to empower marketing professionals by

providing a comprehensive framework for the design, execution and evaluation of

marketing campaigns and other marketing related activities. For example, a

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successful marketing campaign typically generates qualified sales leads that need to

be distributed to sales professionals who need to act upon them. Marketing and

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sales automations are therefore complementary.

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2. One-to-one Relationship Marketing

It is an approach that concentrates on providing services or products to one

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customer at a time by identifying and then meeting their individual needs. It then

aims to repeat this many times with each customer, such that powerful lifelong

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relationships are forged. As such it differentiates customers rather than just products

One to One Marketing is more than a sales approach. It's an integrated approach that

must permeate all parts of an organisation: marketing, sales, production, service,

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finance, etc. In fact, One to One Marketing needs to become the guiding vision that

drives the whole company. One to One Marketing recognises that lifetime values of

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loyal customers who make repeat purchases far exceed that of fickle customers who

constantly switch suppliers in search of a bargain. This is

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particularly true within financial services where the customer acquisition costs are

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very high.

Whilst at first the concept appears to be only suitable for a niche market of rich

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clients, modern information technology, particularly the new interactive mediums,

provide an opportunity to bring personalised and customised products to the mass

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market yet at a mass produced price. This is called Mass Customisation. However,

it does require new thinking that breaks away from the traditional concepts of mass

marketing and mass production. It is now recognised that the acquisition costs of a

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new customer is many orders of magnitude greater that of retaining an existing

customer. For example, in the general insurance industry acquisition costs can be

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equal to 2 to 3 years profit, yet many customers are switching suppliers every year!

Further, with the introduction of Data Mining, many companies are now realising

that just 20% of their customers provide 80% of the profits. Worst, many of the

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remaining 80% of customers are lost-makers.

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One to One Marketing is different to mass marketing because it differentiates the

customers & not products, and because it selects customers based on their lifetime

value. Studies show that such an approach produces a more profitable income

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stream and more competitive advantage. Many of these more profitable customers

are discerning, and they demand or aspire to more personalised products and

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services. It is true that the provision of such products and services has in today`s

mass markets become an expensive niche, and many customers feel "forced" to take

the standard offerings. No wonder they become dissatisfied and switch when a new

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bargain is advertised. And in situations where there is no mass market. (e.g.

solicitors) customers are becoming resentful for the apparent poor value for money.

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But now we have powerful and plentiful IT system, allowing us to create a whole

new paradigm. It's called Mass Customisation.

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Mass Customisation

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Mass Customisation harnesses these new technologies to bring customised and

personalised products and services to customers at a mass production price. The

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uniqueness and profitability of customised products and services, together with the

economies of scale and mass market penetration, stemming from the use of mass

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production techniques.

Mass Customisation introduces a new paradigm whereby companies seek to

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fragment the market through economies of scope. Customers become integral with

the product and service design processes, with more sophisticate customers

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undertaking simulations to answer "what-if" questions. Products and services are

assembled from components to build unique products for individual needs. Mass

Customisation, like One to One Marketing, requires new organisational thinking.

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Every customer interaction provides an opportunity to learn more about the

customer's needs and to then amend their existing products or services to meet their

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changing circumstances. True customer service leading to strong relationships and

enhanced lifetime value. Every employee becomes a marketer!

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Mass Customisation is a componentised approach for assembling individual

products and services to meet the unique needs of your customers but at the same

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cost as a mass produced product. Using modern information technology, customers,

agents, distributors or employees can assemble these products and services to meet

your customer's specific requirements. But it doesn't stop at product sales. Over

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time, the products and services are amended so that they continue to meet customer

needs, and continue to reinforce the bonds between you and your customers. When

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One to One Marketing is combined with Mass Customisation we have a very

powerful synergy that provides a true competitive advantage. Relationship

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marketing as practised in various sectors along with some effective tips on using

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your customer`s database

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Why relationship marketing at all?

When offerings from various companies are nearly at par in terms of quality and

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performance, it is the personal equation between a buyer and seller, which often tilts

the scale in favour of the seller. Here are some examples of companies who have

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implemented relationship marketing and have benefited from it.

Personal touch

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In 1985, the FMCG giant Nestle had only 20% of the baby food market in France.

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They regularly mailed information on childcare to young mothers. Qualified

dieticians were employed to help mothers chalk out a nutrition schedule for their

children. By 1992, its share shot up by 40%.

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Cementing bonds

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Birla Super Shoppes seeks to build relationships by offering free consultancy to

cement buyers such as masons, civil engineers and contractors. Each Super Shoppe

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has a civil engineer and a taskforce to assist him. Travelling to the customer`s site to

give a demonstration or solve their problem helped them to build relationships with

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the customers.

Banking on relationships

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ANZ identified a gap between what customers expected (in the form of advisory

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services and investment banking) from the bank and the perceived delivery. It is for

this cr?me de la cr?me, that the Captain Grindlays Club was formed. The bank

pushes the whole customer-bank relationship beyond the ordinary functional

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spheres of banking, to something more one?to?one and exclusive.

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How to use your customer database

For Customers

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? Send timely reminders of needed services: doctor's/dentist's appointments,

oil change/tune up, "your letterheads/memo pads will be depleted soon.
Order now with the attached reply form..."

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? Send customers' kids birthday cards, if you can get that on your database.

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? Invite customers/prospects to a product demonstration or educational

seminar. (Free to customers, small fee for prospects.)

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? Using careful segmentation, send:

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Information about price changes

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Information about product changes

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Product samples to customers.

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Newsletter (especially as part of a Frequent Buyer program).

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For Business-To-Business

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? Case studies of successful implementation of your product. IT companies

include case studies of solutions developed for their clients in their sales
brochures.

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? Send press releases on new product announcements to customer/prospect

segments. Include information for requesting product brochures.

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? Reprints of your ad campaign with note. (In case you missed our ads when

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they ran in ...xyz...and ...abc..., we're sure you'd want to see them.)

? Contests (customers only). Integrate with sales incentive contest for sales.

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? Send them a copy of the annual report.

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Conclusion:

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If a firm is to implement relationship marketing, it has to understand the objective

and nature of such a strategy. In the competitive situation that is emerging in almost

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all industries and markets, a relationship marketing strategy is crucial for survival.

One-to-One Marketing - The Technologies

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One to One Marketing exploits the new technologies, especially the interactive

ones: Internet, interactive TV, web-TV, kiosks, fax, e-mail, voice mail, personal

data assist, mobile phones, smart phones, etc., all allow personal messages and

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encourage customer feedback - and at a time and a place that suits the customer.

Exploiting these technologies requires a range of appropriate support technologies,

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such as: customer information system, rules based systems, e-commerce systems,

data mining tools, component based IT systems, enterprise repositories, object

technology systems to mention a few. But these new technologies can do far more

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that simply provide new distribution channels to customers, or to support

relationship management - important though these issues are in these competitive

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times. Interactive mediums, together with the support technologies outlined, can

herald a new era of Mass Customisation

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One-to-One Marketing - More than Technology

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One to One Marketing requires a different approach: There is a need to manage

your customers, not just your products. You must take products to customers, not

expect customers to come products. Protecting privacy is important. Threatening

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privacy destroys trust and discourages collaboration. It requires that all parts of the

organisation that deal with or support customer services, to be truely customer

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focused, treating each as an individual. To be successful with One to One

Marketing you may well need to undertake a change management programme.

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Benefits of One-to-One Marketing

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? Higher Profits

? One to One Marketing delivers economies of scope. Not economies of scale.

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? It initially concentrates on those 20% or even 10% of customers who are

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your most profitable.

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? By providing tailored products to meet particular needs, you make

comparative shopping difficult and you shift the focus from price to benefits.

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It aims for lifetime share of customer, not a share in an often static

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and crowded market.

? By developing Mass Customisation capabilities, you can then extend the

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service to more customers. You then gain an ever increasing market share
without the need to match the lowest price mass market supplier.

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? Lower Costs

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? The cost of keeping profitable customers far outweighs the acquisition cost

of new customers.

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? With an intimate knowledge of individual customers, products and services

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can be more accurately targeted (right specification at the right time in the

right way).

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One-to-One Marketing - The Implications. Promotion - One to One promotion

needs to highlight individual possibilities and unique benefits. Timeliness of

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delivery is important.

Design - Customer needs will be better met where products and services can be

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personalised and customised easily. The marketing department needs to take a

component based approach and create identifiable basic building blocks.

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Rules will define the possible combinations and limits. Such rules will usually be

held in a rules repository, along with the other business that defines policies,

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processes, etc. Processes and IT systems will need to support this approach, not

only in product development, but through marketing, sales, and servicing.

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Production - Production systems needs to assemble the basic blocks according to

the rules. This may be down by your sales staff, agents, distributors or your

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customers themselves (Mass Customisation).

Servicing - Profiles of individual customer products as well as profiles of the

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individual customers, need to be available to support staff throughout the life of the

customer.

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Feedback - Feedback during the any part of the marketing, purchase or support

cycles needs to be encouraged and captured. Such data needs to be analysed,

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communicated, and acted on in a timely fashion, perhaps within minutes.

Information provided by customers must be used sensitively and be kept secure.

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Organisation - All staff will be need to be well trained and motivated to meet

individual needs. The management style and organisational culture may well need

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changing. Staff need to be supported with good Information Technology A shared

customer information system, data mining tools, interactive technologies, flexible

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component based systems object technology systems, and rules based systems are

key.

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3. Cross and Up Selling

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Cross selling and up selling are two of the best ways to develop your customer base

and increase your average customer value.

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Cross selling is the strategy of selling your customers a wider range of your

products and services. This can be done by identifying which products to target at

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which consumers based on their past purchases and behavior. E.g. if they have a

bank account would you try to sell them a mortgage, a pension or an ISA? To

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understand what products your customer may be in the market for you need to

understand more about them. If they are older they may not be interested in a

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mortgage or a pension but they may be interested in savings products. To do this

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you need to understand:

? Demographics such as age, income, family composition

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? Product history

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? Responses to previous campaigns/offers

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All this information can then be combined to build a propensity model for your

different products to be used in campaign selections.

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Up selling means driving more value out of the customer by making sure they make

use of your service more often or upgrade to a higher value product. This would be

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done using the same techniques as for cross selling. Only by understanding more

about your customers can you hope to target them with the right product proposition

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at the right time. This tactical activity can be a key tool in retention by deepening

the customer relationship as they have an increasing number of products from you.

How to up-sell, cross-sell and optimize

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There are five ways to do this -

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? Offering a greater quantity for a slightly higher price - For example, giving a

three-for-the-price-of-two discount or a 'large' portion for a 'medium' price,

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such as a case of wine for the price of 10 bottles.

? Offering complementary products - For example, promoting accessories for

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electrical goods, such as batteries, tapes and carry-cases.

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? Offering related products - For example, offering a discount on boots when

a customer buys a winter coat, or swimwear with summer clothes.

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? Offering a premium product - For example, ensuring that customers can't

visit your site without being aware of the existence (and the advantages) of
your highest-quality, big-ticket products.

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? Rewarding loyalty - For example, offering a virtual discount voucher

redeemable the next time your visitors your site, or if they refer you to

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friends and family.

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Repeat nature businesses - baby supplies,

If a customer regularly buys a particular product, then it's highly likely he is also

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buying related or complementary products (nappies with baby toiletries, for

instance). If you offer a discount on these related products, you are not only

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increasing your sales, but helping the customer to streamline his shopping at the

same time. Likewise, a drinks retailer could offer regular customers a special

discount on premium products, such as champagne or related products such as

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glasses and cocktail access

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Single purchase businesses - furniture, hi-fi, computer

Because customers will only visit for a one-off purchase, the objective here is to

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ensure they spend as much as possible while they are there. There are a number of

ways to do this. You could offer competitively priced product 'bundles' such as the

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PC/printer/scanner/software combos offered by computer retailers. You could also

highlight special offers on related products, such as half-price speakers with every

stereo, or you could up-sell visitors to buy the premium products, for example, by

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offering a free carrier or tie with your designer label Another important point to

make is that when it comes to major purchases, your customers need the decision-

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making, specifying and purchasing system to be as stress-free and as positive as

possible. Therefore, you'll need to give them a first-class service throughout and

present your credentials impeccably. Plenty of top brands lose out to smaller

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competitors simply because the site didn't have the same level of quality, choice or

service

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Random or infrequent repeat businesses - books, music, clothes

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The objective in this case is two-fold: one - to encourage visitors to come back

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again more quickly than they might otherwise have done and two - to get people to

spend more while they are there. We have covered the second point in the section

above, but to encourage visitors to come back again, you could, as with the repeat-

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purchase scenario, offer loyalty discounts and incentives. Likewise, you could draw

attention to the rest of your product range or offer volume discounts such as two

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CDs for the price of two

Cross-selling and upselling are established methods of improving your sales and

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increasing customer loyalty. Upselling is the practice of offering customers a

product in addition to the product they are currently purchasing. Cross-selling refers

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to selling items that are related or can be integrated with the item being sold. Both

techniques can increase sales volume and provide a valuable service to your

customers.

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Many product types and Web sites lend themselves perfectly to cross-selling. For

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example, if you sell digital cameras, it makes perfect sense to offer related products

to your customers: photo printers, paper, or other accessories. Selling consumable

items such as paper and printer cartridges can also encourage shoppers to return to

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your store time and again, creating a long-term relationship. That can mean big

profits over time. But you do not have to restrict your offerings to related items.

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You can upsell your customers by offering them nearly anything in addition to the

item they are already interested in. While not necessarily relevant, as in cross-

selling, upselling can still save your customers money. By combining shipping on

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multiple items, your customers can still come out ahead. You can also encourage

them to purchase additional goods by offering free shipping or discounts on orders

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over a certain amount. If a customer's order totals Rs. 2500/- and shipping is free on

orders over Rs. 3000/- , they may look around for something else

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You can employ these techniques at either the shopping phase, or at the checkout

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phase. Implementing cross- or up selling at the shopping phase can be as simple as

having links to similar products on your products pages with some copy such as

"Customers who purchased this product also purchased..." This is a low-tech

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solution, but it can serve to expose more shoppers to your products. After all, not

every site can populate the related products areas dynamically. Using a shopping

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cart that allows you to integrate your efforts is one of the easiest ways to

successfully cross-sell and upsell your items. This is generally more effective,

because users are already making a purchase.

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You can also use the Before you Check Out technique. This is a step that is

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added in to your checkout process before an order is finalized. You can compare

this to the small items that you will find at checkouts in grocery stores. This method

takes advantage of the natural instincts of a shopper and is a very good way to

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cross-sell inexpensive add-ons for your products.

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4. Customer Retention, Behaviour Prediction,
Customer Retention

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Customer Retention marketing is a tactically-driven approach based on customer

behavior. It's the core activity going on behind the scenes in Relationship

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Marketing, Loyalty Marketing, Database Marketing, Permission Marketing, and so

forth. Here`s the basic philosophy of a retention-oriented marketer:

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A. Past and Current customer behavior is the best predictor of Future

customer behavior. Think about it. In general, it is more often true than not true,

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and when it comes to action-oriented activities like making purchases and visiting

web sites, the concept really shines through.

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B. Active customers are happy (retained) customers; and they like to "win."

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They like to feel they are in control and smart about choices they make, and they

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like to feel good about their behavior. Marketers take advantage of this by offering

promotions of various kinds to get consumers to engage in a behavior and feel good

about doing it. These promotions range from discounts and sweepstakes to loyalty

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programs and higher concept approaches such as thank-you notes and birthday

cards. Promotions encourage behavior. If you want your customers to do something,

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you have to do something for them, and if it`s something that makes them feel good

(like they are winning the consumer game) then they`re more likely to do it.

Retaining customers means keeping them active with you. If you don't, they will

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slip away and eventually no longer be customers. Promotions encourage this

interaction of customers with your company, even if you are just sending out a

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newsletter or birthday card. The truth is, almost all customers will leave you

eventually. The trick is to keep them active and happy as long as possible, and to

make money doing it.

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C. Retention marketing is all about: Action ? Reaction ? Feedback ? Repeat.

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Marketing is a conversation, Marketing with customer data is a highly evolved and

valuable conversation, but it has to be back and forth between the marketer and the

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customer, and you have to LISTEN to what the customer is saying to you. For

example, let's say you look at some average customer behavior. You look at every

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customer who has made at least 2 purchases, and you calculate the number of days

between the first and second purchases. This number is called "latency" - the

number of days between two customer events. Perhaps you find it to be 30 days.

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Now, look at your One-Time buyers. If a customer has not made a second purchase

by 30 days after the first purchase, the customer is not acting like an "average"

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multi-purchase customer. The customer data is telling you something is wrong, and

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you should react to it with a promotion. This is an example of the data speaking for

the customer; you have to learn how to listen.

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D. Retention Marketing requires allocating marketing resources. You have to

realize some marketing activities and customers will generate higher profits than

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others. You can keep your budget flat or shrink it while increasing sales and profits

if you continuously allocate more of the budget to highly profitable activities and

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away from lower profit activities. This doesn't mean you shouldget rid" of some

customers or treat them poorly.

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It means when you have a choice, as you frequently do in marketing, instead of

spending the same amount of money on every customer, you spend more on some

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and less on others. It takes money to make money. Unless you get a huge increase

in your budget, where will the money come from?

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If you always migrate and reallocate marketing costs towards higher ROI efforts,

profits will grow even as the marketing budget stays flat. You have to develop a

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way to allocate resources to the most profitable promotions, deliver them to the

right customer at the right time, and not waste time and money on unprofitable

promotions and customers. This is accomplished by using the data customers create

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through their interactions with you to build simple models or rules to follow.

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5. Customer Profitability & Value Modeling,

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Firms have been interested in customer profitability for many years. However,

about seven to ten years ago, customer profitability as a measurable component of

marketing really started to evolve for three main reasons. First, we now have the

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technology that enables us to store millions of data points. Second, in the last ten

years the sophistication in analytics and modeling has increased many folds. These

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models allow us to turn customer data into knowledge. The third catalyst is the push

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for marketing to be more accountable. The emphasis on marketing metrics has

greatly increased. More and more managers are asking themselves, how do we

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know we're getting a return on our marketing expenditure? Before these three

changes, businesses paid attention to profitability ? just not on a customer-by-

customer basis. The attention and analysis was focused on either product-level

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profitability or on broad customer segments. Now, because of increased data storage

and analytical and modeling capabilities, we can drill down to customer level detail.

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And because of the need for marketing to be more accountable, we know we need

to. Early on, CRM programs simply collected data at the customer level. There is a

huge difference between that and converting CRM-based data into customer

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profitability.

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The first fundamental component for understanding customer-by customer

profitability is to know the revenue and the costs for each customer. However, most

companies' accounting systems do not allocate costs on a customer-by-customer

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basis. To turn CRM data into a customer profitability model, a company must

switch from activity-based cost accounting to customer-based cost accounting. This

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means allocating costs by customers. The second component is to move away from

a brand management focus to a customer management focus. In a brand

management model at a bank, for example, one manager manages mortgages, other

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checking accounts, and other credit cards. The managers don`t know how any one

customer interacts across the entire business. For each product, a customer may be a

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low value customer, but he may be very valuable across the entire organization. Yet

because the brand managers cannot know this, they may under-invest in the

customer. If the bank followed a customer manager model, however, the customer's

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true value would be apparent and could be managed accordingly. It's important to

be able to change the focus so that brand or property or departmental managers

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don't manage customers and their information, but rather, the central organization of

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the company does. The real reason is the push for marketing to be more

accountable. The typical response of a marketing manager used to be, I will

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improve customer satisfaction. Knowing customer satisfaction levels is fine and

important, but it's no longer enough. Now senior management wants to know the

return on that investment so they can understand exactly how much they should be

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spending to improve satisfaction. Revenue comes from customers buying products.

If you can value one customer, you can value the entire customer base of a

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company. Then you can project at what rate the company is acquiring customers

and at what rate they are leaving. Combining those components enables a company

to derive the projected value of the customer base, which should be close to the

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value of the firm. Our research shows that customer value provides a strong proxy

for market value of several firms. CEOs and senior management both care about the

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market value of the firm. Typically market value is estimated as discounted cash

flow. The critical component in this approach is the projection of future cash flow.

What is the basis for projecting cash flow?

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A common approach is to use past data for this projection Marketing takes a

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bottom-up approach. Our premise is that cash flow is a result of customers buying

products. Therefore, we can project cash flow and build the ultimate value of the

company from the bottom up by looking at each customer as a building block.

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Historically, when marketing talked about customer profitability, the notion was

How do I provide value to the customers? How do I make my product more

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valuable to the customer? What customer profitability talks about is the flip side of

customer value ? which is how valuable the customer is to the company. So you can

think of it as two dimensions ? how do I provide value to the customer and how

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does the customer provide value to me? If I don`t provide value to the customer, he

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won`t buy anything. On the other hand, if he doesn`t provide value to me, then

should I spend valuable resources on pursuing his business? In marketing, we say

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the customer is the king ? which we have to provide value to the customer. In

finance, cash is king ? how much value do I get from this particular customer?

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Customer profitability brings together these two dimensions? Revenue is easier to

track because it looks at how much a customer actually gives a company. Customer

cost is a harder measure to track because most companies` accounting systems were

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not designed to track customer-by-customer costs. Unfortunately, this means that

acquisition and marketing costs are grouped together and averaged. Slowly,

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companies are beginning to allocate costs by customers because they can see how

many times a customer uses an ATM or frequent flyer cards and so on

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6. Channel Optimization

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Placing the power of predictive analytics right into the hands of marketers, Channel

optimisation is an application for campaign optimization and execution. Channel

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optimisation uses advanced techniques to increase the profitability of campaigns.

The application helps marketers determine to whom to send offers, which offers to

send, when to send them and which channels to use. The objective is to enhance

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customer targeting across multiple campaigns. Unlike traditional marketing

campaign approaches, which focus on choosing the best customers for each

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campaign, Channel optimisation optimizes across the entire set of campaigns, and

selects the best one for each customer. This customer-focused approach can result in

25 to 50 percent increases in campaign revenue. Predictive analytics carries a

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significant potential for mainstream business processes, such as marketing and

sales. The most important factor that will determine the success of predictive

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analytics is the ability for business users to deploy these analytics in their day-to-

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day-activities and incorporate the results directly into the actions they are taking.

Companies can use multiple direct channels -- direct mail, call center and the Web -

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- to market its products.

Cross-Campaign Optimization - Combining predictive analytics and advanced

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business logic, Channel optimisation enables marketers to anticipate how individual

customers will respond to specific campaigns and channels, and calculates which

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campaigns will provide the greatest revenue. During campaign creation, users can

perform what-if analyses by adding business rules, such as specific sales targets or

budget restrictions, to immediately see the impact on campaign expenses and

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revenues.

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Cross-Channel Optimization

Channel optimisation generates campaigns for all outbound channels, such as direct

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mail, e-mail and the call center, using predictive analytics to select the best channel

for each customer, from both a customer and cost point of view. The application

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will automatically select backup channels when the capacity of a channel is

exceeded, to ensure completion of the campaign. Enforcement of Customer Contact

Restrictions enforces internal contact restrictions and interaction policies such as

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do-not-call lists, ensuring that customers are not over contacted or contacted

through restricted channels. These restrictions are enforced across all campaigns

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and channels.

Event-Driven Campaigns - The application monitors individual customer

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behavior to identify changes or events that indicate an unmet need or potential

loss of value, and then selects the best campaign for each particular situation. As a

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result, customers receive timely offers that address their actual needs.

Seamless Integration - As a complement to an existing campaign management

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system, it will enable marketers to improve their campaign results. While the

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application can support every step of the campaign management process, it will

seamlessly integrate with existing campaign management systems and processes, as

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well as existing marketing databases or data warehouses.

Marketers have often had to rely on a hit-or-miss approach to campaign

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management, meaning offers are often targeted too broadly, while the manual

approach to customer selection makes executing multiple campaigns complex,

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time-consuming and hard to get right. Channel optimisation adds an automated

precision to customer contact that improves individual campaign effectiveness and

scales to large customer bases and complex, multi-campaign operations. The

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application allows marketers to leverage their business knowledge and expertise,

but it takes the guesswork and risk out of marketing campaigns, enabling greater

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efficiency, effectiveness and profitability.

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8. CRM and Customer Service

Customer service is the provision of labour and other resources, for the purpose of

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increasing the value that buyers receive from their purchases and from the processes

leading up to the purchase. With the rising dominance of the service sector in the

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global economy, customer service has grown in importance, as its impact on

individuals, households, firms, and societies has become widespread. As a database

marketer, you understand that some customers present much greater profit potential

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than others. But, how will you find those high-potential customers in a database that

contains hundreds of data items for each of millions of customers? The modern

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concept of customer service has its roots in the craftsman economy of the 1800s,

when individuals and small groups of manufacturers competed to produce arts and

crafts to meet public demand. The advent of mass production in the early 20th

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century, followed by an explosion in the demand for goods after World War II,

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increased the power of suppliers at the expense of consumers, and thus reduced the

importance of customer service. A shift in this balance began in the 1970s, as

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international competition increased, and the dominance of western manufacturers

was challenged, first by Japan, then by Korea, China and other developing

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economies. Producers responded by improving the quality of their products and

services. The economic boom of the 1990s again increased the power of suppliers

who, while not completely reverting to lower standards of service, were able to be

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more selective of which customers to serve, and of what levels of service to

provide. The overall quality of customer service - in society and in specific

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industries - will continue to be determined by the relative balance of power between

suppliers and consumers; it will improve as competition becomes more intense, and

decline as competition decreases.

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Strategic advantage

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A company can outperform rivals only if it can establish a difference that it can

preserve. Customer service can be such a difference. It is very difficult to control,

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and therefore difficult to imitate. It is difficult to control because of its variability.

The level of service may vary greatly between two providers in the same

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organization. It may also vary from one moment to another, even as delivered by the

same provider. The difficulty is compounded in multi-unit operations: in addition to

variability within units, there is also variability among units. That is both the

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challenge and the opportunity. The consistent delivery of superior service requires

the careful design and execution of a whole system of activities that includes

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people, capital, technology, and processes. The few companies that can manage this

system do stand out, and are sought out. This is the foundation of their sustainable

competitive advantage.

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Culture

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For an organization`s members to deliver superior service consistently, they must be

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acculturated, i.e. instilled with the values, traits, patterns, and behaviors associated

with a service culture. The mechanisms of this acculturation include recruitment,

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training, empowerment, and accountability, within the framework of an

organization`s ideology of service.

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Service Ideology

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An organization`s ideology comprises its purpose (Why are we here?) and values

(What do we stand for?). Organizations renowned for providing excellent customer

service have typically defined their purpose in terms of service ? to serve their

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customers, and to serve their members. Their values typically include integrity,

trustworthiness, reliability, personal responsibility, industriousness, continuous

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improvement, respect, and consistency.

Recruitment

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The challenge of recruiting and retaining qualified customer service focused

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employees becomes painfully apparent when one is presented with a (not so

uncommon) case in which a large company situates itself within a small rural area.

This has been a tradeoff some companies have made in order to save a few dollars

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on real estate costs. The difficulty comes when employees are discharged during

seasonal down cycles and the same talent is desired three or four months later. This

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model is not ideal and is risky, thus companies find themselves utilizing talent

oveseas needs longer term.

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Training & Empowerment

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Training is focused on enabling personnel to deliver service in manner that is

beneficial to both the organisation`s customers, and to itself.

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Accountability

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Whereas outstanding service organisations allow their people to make mistakes and

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learn from their failures, there is little or no tolerance for violations of its core

service values. People who do not fit into the culture are removed.

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What customers want

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Delivering customer service begins with understanding what customers want. And

this understanding begins with the understanding that they do not always know what

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they want, or why they want it. Traditional market research assumes that they do.

Newer methods recognize that as much as 95% of our decision making is

subconscious. Common research methods (e.g. surveys and focus groups) more

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often reveal what customers think their motivations are, rather than what their

motivations truly are. When respondents do not comprehend their true motivations,

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they tend to state how they think they ought to be motivated. Recent progress in

neuroscience and in observational technologies have yielded more reliable, less

biased, results. Companies have Interaction Designers that use User Centred Design

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methods, among others, to understand what customers need. They often use

Personas to represent the research outcomes, i.e., to describe the customer they are

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designing for. Regardless of how they arrived at their findings, most researchers

agree on the factors listed in this table to the right. Suppliers that meet these

requirements are likely to give their customers a satisfactory experience. In a

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competitive environment, however, satisfaction may not be enough. To stay in

business, firms must be at least as satisfactory as their competitors. Moreover, firms

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that aim to gain profitable growth must increase the number of their customers,

while reducing the cost of customer acquisition. This is particularly true of

companies that compete in mature industries. The objective then is not merely to

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satisfy customers, but to convert them into promoters (customers who recommend a

company to others). Promoters serve to increase a firm`s clientele, without

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increasing its cost of acquisition ? i.e. with no additional marketing or promotional

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expense. But customers do not make recommendations lightly. When they make a

recommendation, they put their own reputations on the line. Firms must earn that

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recommendation through the consistent delivery of outstanding customer service

Good People

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? Friendly, helpful, courteous

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? Empathetic

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? Knowledgeable, accurate, thorough

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? Resourceful, empowered

? Able to recommend solutions

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? Able to anticipate needs

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? Efficient

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? Trustworthy, authentic

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? Reliable

? Responsible

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? Appropriate appearance and demeanor

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Good Offering

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? Good selection

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? Good quality

? In stock

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? Available demos

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? Clear descriptions & pricing

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? Competitive prices

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? Financing, deferred payments

Convenience

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? Convenient locations

? Long hours

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? Available help, fast service

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? Signage that facilitates self-service

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? Fast checkout

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? Shipping/delivery

? Installation

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? Phone/web support

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? On-site repair

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? Hassle-free returns

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? Quick resolution of problems

Good Environment

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? Clean

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? Organized

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? Safe

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? Low-pressure

? Energy level appropriate to clientele

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Benefits of customer service Providers

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? Higher income (more sales, repeat business, referred business)

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? Recognition

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? Personal satisfaction & fulfillment

? Less stress

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? Higher self-awareness and self-control

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? Greater authenticity

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? Happier life at work

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? Stronger social networks, family ties

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? Happier life outside work

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? Organizations

? Quality sales (more add-ons, more service sales)

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? More repeat business

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? More referred business

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? Fewer returns

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? Better reputation

? Higher morale, happier employees

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? Lower employee turnover

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? Higher caliber of job applicants

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? Fewer complaints

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? Higher productivity

? Better work environment

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? Higher inventory turnover

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? Higher profits

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Society

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? Higher income from individuals and firms.

? Higher productivity

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? Stronger families and social networks

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? Greater civility

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Customer Complaints

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Complaints are often treated as a nuisance. Indeed, many organisations are so

determined to avoid them that they exclude any means by which customers can

make complaints! Yet they have considerable value for a number of reasons:

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Although there will always be a small proportion of 'frivolous complaints', a

complaint usually highlights something which has gone wrong with a part of the

overall marketing operation; usually the high quality, which should be a

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fundamental requirement for most organisation, has not been achieved. Whatever

the reason, the sensible marketer will want to know exactly what has gone wrong -

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so that remedial actions may be taken. The strength of good organisations is that its

interactive nature enables the necessary conversations with the complainant to take

place easily, and in good time, and the flexible nature of the 'product' allows for

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remedies to be quickly applied. The way a complaint is handled is often seen by

customers, and their many contacts, as an acid-test of the true quality of support.

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What is more, it is also a powerful reminder to the organisation's own staff of just

how important is quality. Not least, customers who complain are usually loyal

customers (those who are not loyal tend just to switch to another supplier), and will

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continue to be loyal (and valuable) customers - just so long as their complaint is

handled well.

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In the case of services. the transparent nature of the processes themselves provide

reassurance. Even so: The first requirement is that complaints should be positively

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encouraged. That is not the same as saying that the reasons for complaints should be

encouraged. But, assuming that despite your best efforts the problems has occurred,

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you should put nothing in the way of any customer who wants to complain; and,

indeed, positively encourage such complaints - since the main problem lies with the

many more customers who do not complain (and instead change to another

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supplier) rather than the few who abuse the complaints system. This may be

difficult to achieve in conventional markets, where the face to face contact often

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relies on the member of staff causing the complaint to log it! It should be much

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easier for e-commerce, where a specific structure can be put in place - which is

guaranteed to work.

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The second requirement is that all complaints should be carefully handled by

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painstakingly controlled, and monitored, procedures. Complaints must be handled

well, and must be seen to be well handled; by the complainant, and by the

organisation's own staff. Again, the structure of organisations should easily ensure

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that the best audit trails are maintained, and regularly monitored.

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The third, and most important requirement, is that the complaint should then be

fully investigated, and the cause remedied. Complaints are only symptoms. The

disease needs to be cured! There may be an understandable temptation to overlook

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complaints until they reach a 'significant level' - but holding off until the complaints

reach this 'pain level' usually means that they have already become damaging to the

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organisations' image. It is far better to assume that 'one complaint is too many'!

The reality in most organisations is very different. Not least, despite the ease with

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which complaints may be handled, e-commerce companies are perhaps the worst

offenders - possibly because the customer is remote, and has no means of

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embarrassing the manager responsible! Too often the number of complaints are

minimised not by remedying the reasons for them but by evading the complainants!

The assumption is usually made, wrongly so, that complainants are trouble-makers;

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and have to be handled in a confrontational manner!

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The reality is that most dissatisfied customers do not complain (a US survey

showed that 97% didn't!), but they do tell their friends (the same survey showed

that 13% complained to more than 20 other people!). It is easy to avoid an

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unsatisfactory vendor - there are many others to choose from. Clearly, if it was not

already obvious, any organisation should be highly motivated to make certain its

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customers are satisfied. Yet, in practice, remarkably few do so!

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Satisfaction Surveys

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It is essential that an organisation monitors the satisfaction level of its customers.

This may be, all else failing, at the global level; as measured by market research.

Preferably, though, it should be at the level of the individuals or groups - especially

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where this is easy to achieve in the case of e-commerce, by simply asking

customers, after they have used the service, how satisfied they are. IBM, at the peak

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of its success, every year conducted a survey of all its direct customers. The results

were not just analysed to produce overall satisfaction indices, though that was done

(and senior management viewed any deterioration with alarm), but they were also

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provided to field management so that they could rectify any individual problem

situations - where the customer was dissatisfied with any aspect of the IBM service

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and the IBM representative (presumably in 97% of the occasions if the above

results - of the numbers who do not complain - hold true in this field) did not realise

this to be the case! Much the same can be done with individual e-commerce

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customers - something which is much more difficult in conventional marketing.

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There are a number of advantages to conducting satisfaction surveys (particularly

where any individual problems highlighted can be subsequently dealt with) for e-

commerce as much as in traditional markets:

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Like complaints, they indicate where problems lie; for rectification

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If they cover all customers, they allow the 97% of non-complainers to communicate

their feelings; and vent their anger They positively show, even the satisfied

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customers, that their supplier is interested in the customer, and their complaints -

which is at least half way to satisfying those complainants They help persuade the

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supplier's staff to take customer service more seriously. The only difference with e-

commerce is that the process should be much easier to undertake. The importance

of very high standards of customer service is evidenced by two examples. The

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marketing philosophy of McDonalds, the world's largest food service organisation,

is encapsulated in its motto "Q.S.C.& V." (Quality, Service, Cleanliness & Value).

The standards, enforced somewhat quixotically (but memorably) on its franchisees

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and managers at the 'Hamburger University' in Elk Grove Village (Illinois), require

that the customer receive a 'good tasting' hamburger in no more than five minutes,

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from a friendly host or hostess; in a spotlessly clean restaurant. The second

example, Disneyland, also insists on spotless cleanliness, and on the customer being

'The Guest'. It is salutary to observe how few of the competitors in either of these

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fields manage the simple task of keeping their premises clean, let alone being able

to think of their customers as 'guests'; where the terms used in the fairground trade

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(with which Disney competes, albeit at a very different level) usually see the

customer as some form of victim ('pigeon', 'mark', 'punter' etc) - to be fleeced before

the fair moves on! E-commerce pioneers, with the important exception of Amazon,

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unfortunately seem to be following the latter path!

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9. The Call Centre,

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Customer satisfaction and loyalty have become key objectives for organizations as

they recognize that long-term customers cost less to service and are more likely to

spend more with the organization. The call center is the place where many of these

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objectives are carried out -- one contact at a time.

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Customers are more and more important. We can observe a transition from

increasing market share to increasing customer share. Every new technology

makes it easier for customers to change the suppliers. Hence, competition amongst

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suppliers increases. They are forced to exploit new ideas and solutions to gain

customers. The call centre is a centralized office used for the purpose of receiving

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and transmitting a large volume of requests by telephone. A call centre is operated

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by a company to administer incoming product support or information inquiries from

consumers. Outgoing calls for telemarketing, clientele, and debt collection are also

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made. In addition to a call centre, collective handling of letters, faxes, and e-mails

at one location is known as a contact centre.

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A call centre is often operated through an extensive open workspace, with work

stations that include a computer, a telephone set/headset connected to a telecom

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switch, and one or more supervisor stations. It can be independently operated or

networked with additional centres, often linked to a corporate computer network,

including mainframes, microcomputers and LANs. Increasingly, the voice and data

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pathways into the centre are linked through a set of new technologies called

computer telephony integration (CTI).

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Most major businesses use call centres to interact with their customers. Examples

include utility companies, mail order catalogue firms, and customer support for

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computer hardware and software. Some businesses even service internal functions

through call centres. Examples of this include help desks and sales support.

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Mathematical theory

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A call centre can be viewed, from an operational point of view, as a queueing

network. The simplest call centre, consisting of a single type of customers and

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statistically-identical servers, can be viewed as a single-queue. Queueing theory is a

branch of mathematics in which models of such queueing systems have been

developed. These models, in turn, are used to support work force planning and

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management, for example by helping answer the following common staffing-

question: given a service-level, as determined by management, what is the least

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number of telephone agents that is required to achieve it. (Prevalent examples of

service levels are: at least 80% of the callers are answered within 20 seconds; or, no

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more that 3% of the customers hang-up, due to their impatience, before being

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served.)

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Queueing models also provide qualitative insight, for example identifying the

circumstances under which economies of scale prevail, namely that a single large

call centre is more effective at answering calls than several (distributed) smaller

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ones; or that cross-selling is beneficial; or that a call centre should be quality-driven

or efficiency-driven or, most likely, both Quality and Efficiency Driven

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(abbreviated to QED). Recently, queueing models have also been used for planning

and operating skills-based-routing of calls within a call centre, which entails the

analysis of systems with multi-type customers and multi-skilled agents. Call centre

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operations have been supported by mathematical models beyond queueing, with

operations research, which considers a wide range of optimization problems, being

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very relevant. For example, for forecasting of calls, for determining shift-structures,

and even for analyzing customers' impatience while waiting to be served by an

agent.

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Accommodation

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The centralization of call management aims to improve a company's operations and

reduce costs, while providing a standardized, streamlined, uniform service for

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consumers, making this approach ideal for large companies with extensive customer

support needs. To accommodate for such a large customer base, large warehouses

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are often converted to office space to host all call centre operations under one roof.

Centralised offices mean that large numbers of workers can be managed and

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controlled by a relatively small number of managers and support staff. They are

often supported by computer technology that manages, measures and monitors the

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performance and activities of the workers. Call centre staff are closely monitored

for quality control, level of proficiency, and customer service. Typical contact

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centre operations focus on the discipline areas of workforce management, queue

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management, quality monitoring, and reporting. Reporting in a call centre can be

further broken down into real time reporting and historical reporting. The types of

information collected for a group of call centre agents typically include: agents

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logged in, agents ready to take calls, agents available to take calls, agents in wrap up

mode, average call duration, average call duration including wrap-up time, longest

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duration agent available, longest duration call in queue, number of calls in queue,

number of calls offered, number of calls abandoned, average speed to answer,

average speed to abandoned and service level, calculated by the percentage of calls

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answered in under a certain time period.

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Many call centres use workforce management software, which is software that uses

historical information coupled with projected need to generate automated schedules.

This aims to provide adequate staffing skilled enough to assist callers. The

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relatively high cost of personnel and worker inefficiency accounts for the majority

of call centre operating expenses, influencing outsourcing in the call centre

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industry. Inadequate computer systems can mean staff take one or two seconds

longer than necessary to process a transaction. This can often be quantified in staff

cost terms. This is often used as a driving factor in any business case to justify a

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complete system upgrade or replacement. For several factors, including the

efficiency of the call centre, the level of computer and telecom support that may be

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adequate for staff in a typical branch office may prove totally inadequate in a call

centre.

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Technology

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Call Centres use a wide variety of different technologies to allow them to manage

the large volumes of work that need to be managed by the call centre. These

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technologies ensure that agents are kept as productive as possible, and that calls are

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queued and processed as quickly as possible, resulting in good levels of service.

These include ;

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ACD (automatic call distribution)

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? Agent performance analytics

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? BTTC (best time to call)/ Outbound call optimization

IVR (interactive voice response)

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Guided Speech IVR

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CTI (computer telephony integration)

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Enterprise Campaign Management

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Outbound predictive dialer

CRM (customer relationship management)

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CIM (customer interaction management) solutions (Also known as 'Unified'

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solutions)

? Email Management

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? Chat and Web Collaboration

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? Desktop Scripting Solutions

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? Outsourcing

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Third Party Verification (Third party verification)

TTS (text to speech)

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WFM (workforce management)

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Virtual queuing

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Voice analysis

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Voice recognition

Voicemail

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? Voice recording

VoIP

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Speech Analytics

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Call centre dynamics

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Types of calls are often divided into outbound and inbound. Inbound calls are calls

that are made by the consumer to obtain information, report a malfunction, or ask

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for help. These calls are substantially different from outbound calls, where agents

place calls to potential customers mostly with intentions of selling or service to the

individual. Call centre staff are often organized into a multi-tier support system for

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a more efficient handling of calls. The first tier in such a model consists of

operators, who direct inquiries to the appropriate department and provide general

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directory information. If a caller requires more assistance, the call is forwarded to

the second tier, where most issues can be resolved. In some cases, there may be

three or more tiers of support staff. If a caller requires more assistance, the caller is

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forwarded to the third tier of support; typically the third tier of support is formed by

product engineers/developers or highly-skilled technical support staff of the

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product.

Management of call centres

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Management of call centres involves balancing the requirements of cost

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effectiveness and service. Callers do not wish to wait in exorbitantly long queues

until they can be helped and so management must provide sufficient staff and

inbound capacity to ensure that the quality of service is maintained. However, staff

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costs generally form more than half the cost of running a call centre and so

management must minimise the number of staff present.

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To perform this balancing act, call centre managers make use of demand estimation,

Telecommunication forecasting and dimensioning techniques to determine the level

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of staff required at any time. Managers must take into account staff tea and lunch

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breaks and must determine the number of agents required on duty at any one time..

Forecasting demand

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Forecasting results are vital in making management decisions in call centres.

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Forecasting methods rely on data acquired from various sources including historical

data, trend data and so on. Forecasting methods must predict the traffic intensity within

the call centre in quarter-hour increments and these results must be converted to

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staffing rosters. Special attention must be paid to the busy hour. Forecasting methods

must be used to pre-empt a situation where equipment needs to be upgraded as traffic

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intensity has exceeded the maximum capacity of the call centre.

Call centre performance

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There are many standard traffic measurements (performance metrics) that can be

performed on a call centre to determine its performance levels. However, the most

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important performance measures are:

? The average delay a caller may experience whilst waiting in a queue

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? The mean conversation time, otherwise referred to as Average Talk Time

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(ATT)

? The mean dealing time, otherwise referred to as Average Handling Time

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(AHT - equal to ATT plus wrap-up and/or hold time)

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? The percentage of calls answered within a determined time frame (referred

to as a Service Level or SL%)

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? The number of calls / inquiries per hour an agent handles (CPH or IPH).

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? The amount of time spent while an agent processes customer requests while

not speaking to a customer (referred to as Not Ready time/NR, or After Call
Work/ACW, or Wrap-Up.)

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? The percentage of calls which completely resolve the customer's issue (if the

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customer does not call back about the same problem for a certain period of
time, it is considered a successful resolution or FCR - First Call Resolution).

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? The percentage of calls where a customer hangs up or "abandons" the call is

often referred to as Total Calls Abandoned or Percentage of calls

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abandoned. Calls are often abandoned due to long hold times when a call

centre experiences a high call volume.

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? Percentage of time agents spend not ready to take calls, often referred to as

Idle Time.

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? Quality Assurance monitored by a quality assurance (QA) team.

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Refinements of call centres

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There are many refinements to the generic call centre model. Each refinement helps

increase the efficiency of the call centre thereby allowing management to make

better decisions involving economy and service.

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The following list contains some examples of call centre refinements:

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Predictive Dialling ? Computer software attempts to predict the time taken for an

agent to help a caller. The software begins dialling another caller before the agent

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has finished the previous call. This, because not every call will be connected (think

of busy or not answered calls) and also because of the time it takes to set up the call

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(usually around 20 seconds before someone answers). Frequently, predictive dialers

will dial more callers than there are agents, counting on the fact that not every line

will be answered. When the line is answered and no agent is available, it is held in a

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retention queue for a short while. When still no agent has become available, the call

is hung up and classified as a nuisance call. The next time the client is called an

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agent will be reserved for the caller.

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Multi-Skilled Staff ? In any call centre, there will be members of staff that will be

more skilled in areas than others. An 'Interactive Voice Response' (IVR) Unit can

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be used to allow the caller to select the reason for his call. Management software,

called an Automatic Call Distributor, must then be used to route calls to the

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appropriate agent. Alternatively, it has been found that a mix of general and

specialist agent creates a good balance.

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Prioritisation of Callers ? Classification of callers according to priority is a very

important refinement. Emergency calls or callers that are reattempting to contact a

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call centre are examples of callers that could be given a higher priority.

Automatic Number Identification ? This allows agents to determine who is calling

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before they answer the call. Greeting a caller by name and obtaining his/her

information in advance adds to the quality of service and helps decrease the

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conversation time.

Additional issues in call centres

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There are many other issues that have to be planned for when managing a call

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centre. A few of these issues are listed below:

? Call Center Noise Hazards

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? Planning for failure of equipment

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? Need for flexibility in meal-times

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? Need for job variety and training

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? Job exhaustion and stress

? Staff turnover (high attrition rates are common in the call centre industry)

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? Call Center Noise Hazards Place Operators at Risk

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Many employers are unaware of the hazard of acoustic shock, despite the

fact that up to 300,000 victims have been paid over $15 million worldwide.

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? Acoustic shock is a sudden spike of noise; a hazard faced by 1 million call

center operators. It can lead to physical problems such as tinnitus, and

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emotional problems, such as anxiety and depression.

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Variations on the generic call centre model

The various components in a call centre discussed in the previous sections are the

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generic form of a call centre. There are many variations on the model developed

above. A few of the variations are listed below:

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Remote Agents ? An alternative to housing all agents in a central facility is to use

remote agents. These agents work from home and use a Basic Rate ISDN access

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line to communicate with a central computing platform. Remote agents are more

cost effective as they don`t have to travel to work, however the call centre must still

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cover the cost of the ISDN line. VOIP technology can also be used to remove the

need for the ISDN, although the desktop application being used needs to be web

enabled or VPN is used.

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Temporary Agents ? Temporary agents are useful as they can be called upon if

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demand increases more rapidly than planned. They are offered a certain number of

quarter hours a month. They are paid for the amount they actually work, and the

difference between the amount offered and the amount guaranteed is also paid.

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Managers must use forecasting methods to determine the number of hours offered

so that the difference is minimised.

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Virtual Call Centres ? Virtual Call Centres are created using many smaller centres

in different locations and connecting them to one another. The advantage of virtual

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call centres is that they improve service levels, provide emergency backup and

enable extended operating hours over isolated call centres. There are two methods

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used to route traffic around call centres: pre-delivery and post-delivery. Pre-delivery

involves using an external switch to route the calls to the appropriate centre and

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post-delivery enables call centres to route a call they`ve received to another call

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centre.

Interaction Centres ? As call centres evolve and deal with more media than

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telephony alone, some have taken to the term, "interaction centre". Email, Web

Callback and more are gradually being added to the role.

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Criticism of call centres

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Criticisms of call centres generally follow a number of common themes:

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From Callers:

? operators working from a script.

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? non-expert operators (call screening).

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? incompetent or untrained operators incapable of processing customers'

requests effectively.

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? overseas location, with language and accent problems.

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? automated queuing systems.

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? close scrutiny by management (e.g. frequent random eavesdropping on

operator's calls).

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? low pay.

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? restrictive working practices (e.g. there isn't much space for personal

creativity since many operators are required to follow a pre-written script).

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? high stress: a common problem associated with front-end jobs where

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employees deal directly with customers.

? poor working conditions (e.g. poor facilities, poor maintenance and

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cleaning, cramped working conditions, management interference)

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As detailed above, none of these are inherent in the call centre model, although

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many companies will experience some or all of the above while implementing a call

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centre approach. As the science suggests, done properly, a call centre can offer the

quickest route to resolution of customer queries, capitalising on the ready

availability of highly skilled and intelligent people in some areas.

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10 Call Scripting

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Advanced Call Scripting guides members of the sales and service teams through

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their interactions with customers. The result is improved lead conversion rates,

increased customer satisfaction, and reduced training time. Sales reps use call

scripts created with software applications to help qualify leads and position

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products correctly. Customer service reps use them to troubleshoot issues, ensure

cases are categorized correctly, and cross-sell to customers.

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With Advanced Call Scripting, the organization can develop branching scripts that

display relevant follow-up questions based on how customers answer questions. It

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can also include tips on how to ask and answer questions when communicating with

customers. An integrated scoring engine can contribute to improved lead quality by

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helping executives determine whether a lead is qualified. The executives can launch

call scripts from several objects, including leads, opportunities, cases, contacts, and

accounts. To simplify time-consuming data entry tasks, scripts can be configured to

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store the responses they receive in fields on these objects.

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Consistency of the caller experience is a key, but often illusive, component of call

center quality. In the past, call centers focused on extensive agent training, ongoing

call monitoring, and regular employee evaluations as a means to enforce

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consistency from one call to the next and one agent to another. Unfortunately, all

too often, these efforts fell short of the desired goal, leaving both agents and

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management frustrated and anxious. However, when the call flow can be

programmed, or scripted, for the agent, this lofty ambition of consistency is much

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easier to achieve and maintain. In essence, if the call control can be embedded into

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the call processing system, consistency is the welcome byproduct. Pre-planning a

call via scripting will not negate the need for agent training, monitoring, and

evaluation, but it will make those efforts simultaneously more effective and less

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needful.

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Advanced software allows call centers to handle the high expectations of today`s

clients who demand fewer errors and more sophisticated message processing.

Intelligent Messaging guides the agent through each step of taking a call, gathering

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information from callers and then quickly dispatching that information to clients.

The benefits include:

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? Reduced agent errors

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? Simplified difficult account call handling

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? Agents guided through each step of message handling

? Simplified appointment taking, order entry, or brochure requests

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? Customized look and feel of each script

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The Web-based scripts make it easy for agents to handle detailed calls to schedule

appointments, classes, or seminars and to take orders. The voice-based scripts use

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IVR (Interactive Voice Response) system to create automated voice applications.

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Empower customer service, telesales and 3rd party vendors with customizable call

scripts. Make sure that the agents are asking the most appropriate questions at the

right time using customized workflow. Information captured on the call is collected

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directly, ensuring high-quality data and more effective calls outcomes.

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Benefits of Call Scripting:

? Reduces agent training time

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? Drop-down choices change dynamically based on customer response

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? Supports personalized interactions based on existing record data

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? Facilitates up-selling and cross-selling

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? No third-party software required

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11. Customer Satisfaction Measurement.

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Customer satisfaction is the customer's perception that a supplier has

completely satisfied their expectations.

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Why Measure Customer Satisfaction ?

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The average business loses between 10% and 30% of its customers each year,

often without knowing:

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? Which customers they have lost

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? When they were lost

? Why there were lost

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? How much sales and profit customer decay has cost them

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Research has demonstrated conclusively that it is far more costly to win a new

customer than it is to maintain an existing one. The most powerful reason for doing

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anything in business is that it will increase profitability Measure customer

satisfaction, and acting appropriately on the results, will increase profitability

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? NOT taking action allows your customer base to decay while permitting

your competition to gain market share

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Consider these statistics:

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? Only 4% of all customers with problems complain

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? The average person with a problem eventually tells 9 other people

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? Satisfied customers tell 5 other people about their good treatment

? Cost of acquiring a new customer is 5 to 7 times greater than retaining

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current ones

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? Cost of hiring and training a new employee is up to 10 times greater than

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retaining current ones

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Your customer's perception of the value of your company provides is based on

the following attribute foundation:

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? Organizational

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? Product

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? Service

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? Future behaviour

Design and Use of a CSM Program

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The typical CSM (Customer Satisfaction measurement) program would be

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having the following steps -

1. Defining the objectives

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? Identify customer's priorities

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? Learn customer's tolerance band

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? Receive first-hand input on your company's performance

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? Obtain performance ratings relative to your customer's priorities

? Learn performance ratings relative to your competitors' performance

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? Establish priorities for improvement

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2. Develop the Research Design

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? Research design flows directly from the stated objectives

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? Must be developed to ensure reliability

? Ability to provide consistent results

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? Measures the original intent

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? Eliminates bias

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? Meaningful questions to the customer

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3. Questionnaire Design

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? Product attributes

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? Service attributes

? Organizational attributes

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? Future behavior attributes

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? Benefits of Satisfaction Surveys

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4. Improve customer, client, or employee loyalty

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? React quickly to changes in the market

? Identify and capitalize on opportunities

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? Beat the competition

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True "customer satisfaction" is an organization's ability to attract & retain

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customers and enhance the customer relationship over time. It is not simple and the

answer cannot be collapsed into a single "customer satisfaction index." Every

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interaction a customer has with a company`s products & services is a reflection on

quality.

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Customer satisfaction measurement (CSM) is a management information system

that continuously captures the voice of the customer through the assessment of

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performance from the customer's point of view. This information provides a

platform for the strategic alignment of organizational resources to deliver whatever

is most important to customers. Customer satisfaction measurement is an evolving

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tool that is moving beyond early, basic measures of satisfaction toward approaches

that enable a business to compete more effectively in its targeted market.

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Simple approaches to assessing customer satisfaction fail to measure -

1. Perceptions of non-customers

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Tracking "market satisfaction" requires input from non-customers as well as

customers.

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2. Performance relative to competitors

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Customers judge your product/service offering relative to offerings of your key

competitors. If your performance is improving, but your competitors are improving

faster, your relative perceived quality would actually decline.

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? Seek out features that are both unique and worth a lot to customers

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? Differentiate their product/service offerings to meet differing segment needs

better than their competitors

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? Actively communicate these benefits, building a conviction by the customer

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that they are better off continuing their relationship

? In contrast, market-perceived quality versus competitors involves a dramatic

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shift in focus -- from satisfying your current customers to beating

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competitors through customer value management. Firms that succeed in

holding onto their customer relationships:

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True customer value management entails integration of total quality management

with the company`s classic management systems (strategic planning, budgeting &

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control, capital investment, competitive analysis, performance measures & reward)

to ensure that companies enter and invest only in businesses where they can be

quality & value leaders.

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The payoff from customer satisfaction measurement comes from its ability to define

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& direct a company`s quality improvement efforts, and its quality/value position in

the marketplace. Customer satisfaction measurement and quality impact profits by:

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? Reducing costs

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? Preventing erosion in revenues over time

? Increasing market share

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? Increasing gross margins

The loyalty business model is a business model used in strategic management in

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which company resources are employed so as to increase the loyalty of customers

and other stakeholders in the expectation that corporate objectives will be met or

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surpassed. A typical example of this type of model is: quality of product or service

leads to customer satisfaction, which leads to customer loyalty, which leads to

profitability.

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The service quality model

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A model by Kay Storbacka, Tore Strandvik, and Christian Gronroos (1994), the

service quality model, is more detailed than the basic loyalty business mode but

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arrives at the same conclusion. In it, customer satisfaction is first based on a recent

experience of the product or service. This assessment depends on prior expectations

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of overall quality compared to the actual performance received. If the recent

experience exceeds prior expectations, customer satisfaction is likely to be high.

Customer satisfaction can also be high even with mediocre performance quality if

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the customer's expectations are low, or if the performance provides value (that is, it

is priced low to reflect the mediocre quality). Likewise, a customer can be

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dissatisfied with the service encounter and still perceive the overall quality to be

good. This occurs when a quality service is priced very high and the transaction

provides little value.

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This model then looks at the strength of the business relationship; it proposes that

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this strength is determined by the level of satisfaction with recent experience,

overall perceptions of quality, customer commitment to the relationship, and bonds

between the parties. Customers are said to have a "zone of tolerance" corresponding

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to a range of service quality between "barely adequate" and "exceptional." A single

disappointing experience may not significantly reduce the strength of the business

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relationship if the customer's overall perception of quality remains high, if

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switching costs are high, if there are few satisfactory alternatives, if they are

committed to the relationship, and if there are bonds keeping them in the

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relationship. The existence of these bonds acts as an exit barrier. There are several

types of bonds, including: legal bonds (contracts), technological bonds (shared

technology), economic bonds (dependence), knowledge bonds, social bonds,

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cultural or ethnic bonds, idiological bonds, psychological bonds, geographical

bonds, time bonds, and planning bonds.

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This model then examines the link between relationship strength and customer

loyalty. Customer loyalty is determined by three factors: relationship strength,

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perceived alternatives and critical episodes. The relationship can terminate if: 1) the

customer moves away from the company's service area, 2) the customer no longer

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has a need for the company's products or services, 3) more suitable alternative

providers become available, 4) the relationship strength has weakened, or 5) the

company handles a critical episode poorly.

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The final link in the model is the effect of customer loyalty on profitability. The

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fundamental assumption of all the loyalty models is that keeping existing customers

is less expensive than acquiring new ones. It is claimed by Reichheld and Sasser

(1990) that a 5% improvement in customer retention can cause an increase in

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profitability between 25% and 85% (in terms of net present value) depending upon

the industry. However, Carrol and Reichheld (1992) dispute these calculations,

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claiming that they result from faulty cross-sectional analysis.

According to Buchanan and Gilles (1990), the increased profitability associated

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with customer retention efforts occurs beceause: The cost of acquisition occurs only

at the beginning of a relationship: the longer the relationship, the lower the

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amortized cost. Account maintenance costs decline as a percentage of total costs (or

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as a percentage of revenue). Long term customers tend to be less inclined to switch

and also tend to be less price sensitive. This can result in stable unit sales volume

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and increases in dollar-sales volume.

Long term customers may initiate free word of mouth promotions and referrals.

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Long term customers are more likely to purchase ancillary products and high-

margin supplemental products.

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Long term customers tend to be satisfied with their relationship with the company

and are less likely to switch to competitors, making market entry or competitors'

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market share gains difficult.

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Regular customers tend to be less expensive to service because they are familiar

with the processes involved, require less "education," and are consistent in their

order placement.

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Increased customer retention and loyalty makes the employees' jobs easier and

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more satisfying. In turn, happy employees feed back into higher customer

satisfaction in a virtuous circle.

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For this final link to hold, the relationship must be profitable. Striving to maintain

the loyalty of unprofitable customers is not a viable business model. That is why it

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is important to for marketers to assess the profitability of each of its clients (or types

of clients), and terminate those relationships that are not profitable. In order to do

this, each customer's "relationship costs" are compared to their "relationship

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revenue." A useful calculation for this is the patronage concentration ratio. This

calculation is hindered by the difficulty in allocating costs to individual

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relationships and the ambiguity regarding relationship cost drivers.

Expanded models

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Virtuous Circle

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Schlesinger and Heskett (1991) added employee loyalty to the basic customer

loyalty model. They developed the concepts of "cycle of success" and "cycle of

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failure". In the cycle of success, an investment in your employees` ability to provide

superior service to customers can be seen as a virtuous circle. Effort spent in

selecting and training employees and creating a corporate culture in which they are

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empowered can lead to increased employee satisfaction and employee competence.

This will likely result in superior service delivery and customer satisfaction. This in

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turn will create customer loyalty, improved sales levels, and higher profit margins.

Some of these profits can be reinvested in employee development thereby initiating

another iteration of a virtuous cycle.

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Fredrick Reichheld (1996) expanded the loyalty business model beyond customers

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and employees. He looked at the benefits of obtaining the loyalty of suppliers,

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employees, bankers, customers, distributors, shareholders, and the board of

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directors.

Questions ?

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1. Explain the concept of one to one marketing?

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2. What is cross selling? How can a company use it to the best advantage?

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3. List down & explain the methods of cross selling.

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4. How will customer retention help the organisation to be more profitable?

5. Expalain the concept & methods of call scripting.

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6. What is CSM? How is it oimportant for modern organisations?

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7. How can an organisation use event marketing to the best advantage?

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8. What are the important aspects of CRM that will help managers in

running the organisation more efficiently?

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9. What is customer value modelling? Expalin?

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10. Explain how behavour prediction can increase sales revenues?

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UNIT III ? LESSON I

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INTRODUCTION :

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Before getting to know about Sales force automation we need to know first what a

sales process is . A sales process is a systematic methodology for performing

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product or service sales. The reasons for having a sales process include seller and

buyer risk management, achieving standardized customer interaction in sales and

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scalable revenue generation.

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Specific steps in sales processes vary from company to company but generally
include the following steps:

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1. Sales lead
2. Qualified prospect

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3. Need identification

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4. Closing
5. Deal Transaction

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From a seller's point of view, a sales process mediates risk by stage-gating deals

based on collection of information or execution of procedures that gate movement

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to the next step. This controls seller resource expenditure on non-performing deals.

Ideally this also prevents buyers from purchasing products they don't need though

such a benefit requires ethical intentions by the seller. Because of the uncertainty of

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this assurance, buyers often have a buying or purchasing process.

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Sales processes are generally more common for companies that either have large
revenue risks that require systematic assurance of revenue generation and/or those

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that choose to use a more consultative sales approach (e.g. Saturn, IBM, Hewlett-

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Packard).

Strictly even an effective ad hoc or retail sales process can be described by steps of

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an ideal sales process though some of the steps may be executed quickly. Often a

bad sales experience can be analyzed and shown to have skipped key steps. This is

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where a good sales processes mediate risk for both buyer and seller.

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Many companies develop their own sales process; however, off the shelf versions

are available from companies such as Huthwaite International and Miller Heiman.

These provide a customisable process and a set of electronic tools that can be

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freestanding or can be integrated if required with the company's CRM or

opportunity management system

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Sales Process Management

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Sales process management includes all the tasks associated with finding sales

opportunities and closing deals. This includes:

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? Prospecting and qualifying leads.

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? Managing contacts, opportunities, and accounts.

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? Tracing the stages of deal closure and its related probabilities, including

the variable compensations directly or indirectly related to closing deals.

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? Managing and tracking communications between salespeople

and customers, such as conducting direct e-mail campaigns.

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? Maintaining a database of product information in a format that`s easy for the

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sales force to access, either online in the office or offline at a customer site.

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Forms of Sale Activity

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The term sales is includes many activities some of the various modes of

selling include:

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? Direct Sales - involving face-to-face contact

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1. Retail or consumer

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2. Door-to-door or travelling salesman

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3. Party plan

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? Industrial/Professional Sales - selling from one business to another

1.

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Business-to-business

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? Indirect - human-mediated but with indirect contact

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1. Telemarketing or telesales

2. Mail-order

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? Electronic

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1. web B2B, B2C

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2. EDI

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? Agency-based

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1. consignment

2. multi-level marketing

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3. sales agents (real estate, manufacturing)

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Types of sales include:

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? Transaction sales

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? Consultative sales

Complex sales

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ACTIVITY :

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1. What do you mean by a Sales process? What are the forms of a

sales activity?

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_______________________________________________________

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_______________________________________________________

_______________________________________________________

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_______________________________________________________

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____________________

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Sales Force Automation

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In today`s global marketplace, organizations are fiercely competing for customers.

Increasingly, technology is playing an ever important role in the acquisition,

service and

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retention of customers. Within the broader landscape of strategic information

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management, sales related technology is being utilized by executives aiming to

improve

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sales processes and achieve higher revenues. To this end, there is a growing

concentration on sales performance metrics in an attempt to meet corporate growth

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targets. Sales Force Automation (SFA) systems have become the backbone

for many

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sales organizations. The adoption rate of these systems has grown significantly

over the

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last five years, and they are considered an immediate competitive necessity
rather than a

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future luxury. Even in the face of 55-75% implementation failure rates ;

organizations still look to these systems to satisfy their burning need to improve

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their internal customer information systems and sales processes in order to

increase their external competitiveness.

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The origin of SFA can be traced back to the original personal computers adopted by

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salespeople in the early 1980`s to perform basic transaction processes . Towards the

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end of the decade, microcomputer applications were introduced and were touted as

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increasing the learning curve` of salespeople in helping them correctly identify

customers and execute sales methods . Soon after these applications were

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introduced salespeople saw the introduction of mobile communication devices such

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as mobile phones and pagers. It was not until the early 1990s that the sales force

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caught up with the rest of the organization and finally started to embed IT into its

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operations at the organizational,

individual and team level.

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SFA Definition

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There is a wide spectrum of sales and IT related activities that are considered part of

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SFA. Although there is no universal definition, is the most commonly used, sales

force automation involves converting manual sales activities to electronic processes

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through the use of various combinations of hardware and software applications.

This paper will use this definition as the framework to review previous research

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and to orientate the proposed methodology.

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Organisational level:

The underpinning question that organizational level analysis aims to answer

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is whether

there are any organizational benefits from SFA, and if there are what are they

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and how

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are they achieved and maintained?. First, it empirically found a positive

relationship between the functional breadths of the SFA buying committee and

overall organizational system benefits. Additionally, firms that had the combined

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intent to improve both operational efficiency and to establish a strategic

competitive edge proved

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to have greater pay-off than simply those who aimed to automate manual

selling tasks.

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These findings further contributed to SFA research and presented the question of

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economically quantifying SFA facilitated improvements. Improving an

organization`s efficiencies` was the overriding factor behind initiating SFA

projects. Paradoxically, the majority of respondents could not expand on improved

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efficiencies` when asked to do so. Suggestions for future work shifted towards

investigating post-implementation situations and field sales representatives`

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experience relative to their performance. Considering these two important studies,

we can see that the SFA research focus quickly encompassed a wide array of topics.

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The most recent organizational study evaluated the distance between management

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and the sales force in terms of their respective perceptions of SFA planning,

communication and evaluation. The study highlights the difference in opinion of

these two groups in regard to SFA trade-offs and benefits. Although both had the

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same goal of increased efficiency, both projected different effects from the system.

Management sought increased sales with less sales people versus the sales

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person`s view

to increase individual sales through activity automation. This dichotomy of

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intended benefits can often be attributed to a multitude of individual level analysis

factors which

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influence SFA adoption and utilization.

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Individual Level

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SFA research at the individual level has become a multi-dimensional research area.

There

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are many variables which can affect the maximization of the system and sales

performance. The highest sales producers were those that rated high` on

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acceptance positive attitude towards new technology and also in number of years of

experience. Overall, a strong connection between the salesperson`s attitude type

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towards using new technology in the day-day activities and years of experience in

relation to sales success existed. A study investigated attitude factors that impacted

levels of SFA infusion.` Infusion` was defined as the extent to which the

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salesperson fully utilizes

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SFA to enhance her productivity. The factors reviewed included: personal

innovativeness, perceived usefulness, attitude toward new system, compatibility

with current system, facilitating conditions, subjective norms and ease of use. The

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relationship of these factors was mapped to dependent outcomes of levels of

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intention to use` and infusion of use` of the new SFA system. The two key results

of this work were important managerial considerations. The findings indicated that

salesperson attitude concerning the new systems usefulness in their role and

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compatibility with current system had a large bearing on the adoption rate. It was

found that the level of infusion positively correlated with the level of facilitating

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conditions` such as training and support provided by the organization. Although the

idea of infusion`, thus, establishing a new desired benchmark for SFA utilization,

they failed to qualify or discuss the timing of their post-implementation data

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sample. The data was collected just six months after implementation. The author of

this paper suggests that their findings could have offered greater insights by

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comparing the responses after a twelve or twentyfour month interval, therefore,

adding to the limited longitudinal analysis in this area. Only after such time would

sales people have been able to benefit from training and infused` SFA into their

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daily work translating to higher levels of efficiency and performance.

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Implementation Success vs. Failure ? what makes the difference?

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Successful SFA implementation and adoption can depend on several core activities.

Recent research has further cemented the importance of training and salesperson

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involvement in the decision-implementation planning. Another important variable is

genuine projections from management on the system`s impact on the salesperson`s day

day operations. This is directly related to the first step of adoption model: managerial

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communication. Equally as important as understanding why some firms succeed in

SFA implementation, is to understand why others fail. A recent study offered valuable

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insights into how not to manage SFA. The authors investigated

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SFA adoption through the identity theory` framework. Logically, sales-people are

often more autonomous than other members of the enterprise. As such, they react

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differently to organizational changes such as SFA. Suitably, the focus on specific

elements that make up the salesperson`s identity` which contribute to and are

impacted by their level of adoption. The authors investigated the relationships

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between individual perceptions of technology (comprised of individual traits,

disposition toward technology, role perception and organization characteristics) and

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their professional state on the person-technology fit and measured to the extent to

which these relationships influenced both subjective (such as job satisfaction) and

the objective (for example salesperson retention) Alarmingly, the results indicated

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that initial enthusiasm and adoption of the system quickly decreased following the

initial training and implementation and ultimately resulted in increased rejection of

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the system by the sale force. Their analysis highlighted the fact that if SFA is not

supported in an ongoing manner, it can lead to low levels of person-technology

fit.` This in turn can lead to wider organizational problems such as poor job

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satisfaction and ultimately salesperson turnover. This critical business problem is

one that requires analysis at the organizational, individual and team level.

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The discussion above suggests that SFA does not sustain any benefits for field sales

representatives and also poses managerial headaches in terms of cost employee

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productivity and morale. However, some suggest otherwise. Increased sales person

productivity is an inherently assumed benefit of SFA, however, there are few

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empirical studies to either prove or disprove this assertion. Furthermore, which

areas of sales activities are enhanced by SFA and to what degree? the wide array of

SFA technologies is categorized into categories that primarily reflected their impact

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on sales activities: organizing, presenting, reporting, informing, supporting and

processing

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transactions and communicating. Their robust analysis revealed valuable insights

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into

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which technologies where being used in the field. The organizing category, more

specifically, contact management, was the overriding category area with the

greatest improvement in efficiency. The second important finding was that an

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enhancement in

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communication with both clients and the home office greatly increased with
some form

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of SFA. The interaction and SFA usage with team members at the home office is

a related issue which should be researched in the future to address team dynamics.

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The changing nature of sales roles

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Several recent studies have provided a deeper drill-down on the complexities on

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SFA

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adoption and effectiveness on experienced users of SFA. Their research examined

the technology stressors related to SFA and the level of infusion of SFA into sales

representatives` daily work. In sum, the research quantified that as the complexity

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of the sales person`s task to integrate the new technology into the work increased,

the related effort and time they dedicated to this activity decreased. Put simply,

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sales people felt overwhelmed with the level of impact SFA changed their

routines and even the nature of their roles . This issue cannot be overlooked or

underestimated in regards to the impact it can have on SFA success. Likewise, the

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integration of SFA within broader organization initiatives can have both negative

and positive effects on sales performance.

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ACTIVITY :

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1. Define Sales Force Automation.

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2. What is the significance of Sales Force Automation at individual and

organizational level?

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3. What factors determine the success or failure in the implementation

of a Sales force Automation process.

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Lead Management

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Managing leads effectively and optimizing lead flow across sales and marketing

are critical to achieving sales success. With Sales force you can track prospect

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inquiries and seamlessly route qualified leads to the right people so sales reps get

instant access to the latest prospects and leads are never dropped or lost.

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Lead Management is designed to optimize the initial pre-sales process, freeing

up your sales department to focus on the most valuable prospects and

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opportunities. For a given marketing campaign, you may wish to generate

leads for certain business partners within a target group. You use leads to

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qualify the level of interest presented by these business partners, with a view to

transforming them into opportunities. Both customers and prospects can be

considered as leads. For example, an existing customer may be a lead for a new

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project you are working on.

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This scenario addresses the following business challenges:

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Leads are wasted if they are not delivered to the right person at the right

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time. Organizations struggle with the ability to get leads to the right

person in a timely manner

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Good leads are often overlooked, while time is wasted following up on

poor leads. There is no ability to incorporate a corporate standard in the

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qualification process to ensure quality and timeliness of follow-up

There is no standardization of surveys, or capabilities to easily

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create centralized surveys

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Having quality leads is imperative to ensuring success with the

leads. Duplication of leads, causes wasted time and money

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Organizations have not visibility into the lead process, and have no ability

to make adjustments to ensure success

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No visibility into the Lead Management process, no idea how many leads,

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number qualified, conversion rates, where each lead is in the process, etc.

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The lead process is directly tied to ROI, most companies have no

understanding of the impact of leads and lead conversions to ROI

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BENEFITS:

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? Prevent leads from falling through the cracks

? Improve responsiveness to prospect inquiries

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? Standardize lead qualification best practices

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? Increase lead conversion rates

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? Build distinct lead management processes for distinct groups

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? Get the most from your marketing spend

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? Optimize lead flow from capture to close

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? Set security controls to ensure teams or partners can access only their

own leads

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Ways for Improving Your Lead Management Process:

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If you're looking for ways to increase revenue, one of the fundamental processes

you need to review is your lead management program. Prospect leads can

originate in a variety of ways, and there is often only a very loose structure in

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place to manage and react to those leads. Your sales pipeline and your ability to

hit revenue targets all begin with good lead management. Try these eleven

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strategies for improving your lead management efforts.

Develop a concrete definition of a lead and make sure all employees

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understand it.

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One of the biggest disconnects between sales and the rest of the company is the

definition of a lead. When does a prospect become a lead that a salesperson will

actually work on? It's estimated that 90 percent of the leads that are sent to sales

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staff are never acted upon. And there are generally two primary reasons for that.

First, the lead is routed to the wrong person and never gets passed along to the

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correct person or at least not in a timely fashion. Second, the lead isn't ready to

engage with a salesperson yet. So the sales person will make one, maybe two

contacts with that prospect and then move on to "lower hanging fruit." For better

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sales effectiveness, your sales staff and the rest of the company need a more

granular definition of when a prospect becomes an actual lead that should

be forwarded to sales.

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2. Install an effective sales opportunity management solution (we
recommend Prophet!).

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For optimal sales effectiveness, you need to provide employees with a tool

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that captures information about each and every interaction with your prospects

and customers.

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3. Track the source of the lead.

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People most often hear about your company and products and services through ads,

referrals, online banner ads or some other form of advertising. You need to keep

track of what actually caused these suspects to raise their hands so you can better

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determine what works and what doesn't. In addition, it's important to capture the

source of each intervening event so you can determine such things as how many

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times you need to touch a customer or what order of touches work best. If you

don't capture the source, you have no way of figuring out what's working.

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4. Distribute your leads quickly.

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Studies have shown that if you respond within 48 hours of a prospect contacting

you, your sales closing rate goes up dramatically. Think about your own

experiences. How many times have you tried to contact a company to request

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information and they never get back to you? By responding quickly, you set

yourself apart from your competitors. Make sure you track this rate as a key

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sales metric.

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5. Nurture your leads.

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Depending on the products and services you offer, most people are probably not

ready to buy based on their first interaction with you. Best practices call for

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nurturing your leads over time. You need to develop campaigns that allow you to

touch your prospects multiple times so you can move them through the sales

cycle until they're ready to think about actually purchasing from you.

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6. Excite your sales staff about each prospect.

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The best salespeople focus on detailed qualifying, and so should the rest of your

staff. The more information you have about a prospect, the more excited your

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salespeople will be about the lead. Whoever's collecting prospect information

needs to extract additional information from every prospect with each interaction,

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including such things as "what interested you about our products" and "why is it

important to you." They should also try to may the organization so your

salespeople are getting in touch with the decision-makers in each company.

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7. "Tag, you're it."

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How do you save those interesting bits of information about customers and

prospects? If you tag your records with the names of your competitors on deals,

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what their objections are, whether they'll be a referral or not, which products they

already own and so on, you can then find those detail fast in the future. This

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allows you to leverage what you learn in order to be more successful.

8. Treat your prospects like customers.

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By capturing the source I mentioned above in #2 about each prospect, anyone at

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your company can answer a call from that prospect and more effectively answer

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their questions. This will have a significant impact on your prospects and will

cause them to want to engage with your team further.

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9. Measure everything you do.

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But in order to measure your results, you need to decide what you want to measure

and why. Then you can capture the correct information upfront. And once you

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have the right information, you can determine the return on investment of your

campaigns and focus on the campaigns and prospects that will increase your sales

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pipeline.

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10. Hold regular meetings with your sales staff and anyone else involved in

the sales process.

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You should meet with appropriate staff members on a regular basis to review

lead quality, win/loss records, and tracking CRM systems so you can continue to

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improve your sales effectiveness.

11. Preload your database with the right prospects.

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Your customers are the first step in prospecting sales leads. Most people think they

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already know who their customers are, but many companies tell us they find a few

surprises when they do an analysis of their customer base. So confirm what you know

about your customers. Then, once you know who your customers are, define a

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few key attributes about them. This could be external attributes such as

geography, SIC code, company size (employee count and revenue), or internal

attributes such as products, territory, credit type and contract type. Now you can

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use the profile of your best customers to better define and acquire new prospects.

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ACTIVITY :

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1. Define Lead Management .

2. What are the benefits of Lead Management

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3. Highlight the different ways of improving the lead management process.

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___________________________________________________________________

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_____

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Knowledge Management :

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The concept of corporate knowledge is not a novel idea. Today's challenging

business environment requires executing strategy faster, more cheaply and more

effectively to survive in a global business world. Corporations are under constant

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pressure to improve performance in every facet of their operations. It is competing

in a shifting landscape. With the growth of the Internet and an increasingly mobile

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workforce, leveraging organizational knowledge is not an option - it is an

imperative to succeed in today's competitive landscape. Corporations that have the

foresight to manage their knowledge capital today with an open, scalable and

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extensible approach will have an advantage in the future, making it tougher for their

competition to catch up.

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"Knowledge management is a differentiating factor for companies today,
providing the difference between being competitive and just dong business."

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Howard Deane, the National Director of knowledge management at KMPG

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"If we only knew what we know, we would be 30 percent more productive."

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-- Lewis Platt, CEO Hewlett-Packard (1992-1999)

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So effective Knowledge Management is a critical component of any business

strategy. To successfully manage and leverage knowledge and expertise across

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global boundaries, companies need to implement knowledge management strategies

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that enable them to capture, manipulate, and deploy the information residing in their

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environments.

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Knowledge management.

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KNOWLEDGE:

Knowledge is not static; it evolves. Any knowledge management system must be

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able to support the acquisition, analysis, preservation, and reuse of knowledge as a

continual cyclical process.

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Knowledge exists in two forms: explicit knowledge that can be codified and tacit

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knowledge that cannot always be codified.

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Knowledge is a fluid mix of framed experience, values, contextual information, and

expert insight that provides a framework for evaluating and incorporating new

experiences and information. It originates and is applied in the minds of knowers. In

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organizations, it often becomes embedded not only in documents or repositories but

also in organizational routines, processes, practices and norms.

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Knowledge representation is too formalized; much tacit knowledge will be lost.

Thus knowledge representations for knowledge management systems must be

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flexible and discursive.

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There are various definitions for Knowledge management. Few among them are:

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A variety of general and specific technologies for knowledge collection

(e.g., data mining, text summarizing, the use of intelligent agents, and a
variety of information retrieval methodologies), knowledge storage and

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retrieval (e.g., knowledge bases and information repositories), and
knowledge dissemination and application (e.g., intranets and internets,

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groupware, decision support tools, and collaborative systems).

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Knowledge management is a continuing cyclical process with no end, not a

linear one with a single goal. A knowledge management system will
therefore be continually evolving, or learning, and any technology used to

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implement it must support evolution and learning. This point is worth
repeating: knowledge management is a continuous ongoing process, not

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something to be done only once.

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A multi-disciplined approach to achieving organizational objectives by

making best use of knowledge. It involves the design, review and

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implementation of both social and technological processes to improve the

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application of knowledge, in the collective interest of stakeholders

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Interim Australian Standard Knowledge Management, 2003

A discipline that promotes an integrated approach to identifying, capturing,

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evaluating, retrieving and sharing all of an enterprises information assets

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Gartner Group, 1998

Knowledge management involves the acquisition, storage, retrieval,

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application, generation, and review of the knowledge assets of an
organization in a controlled way. The knowledge that is to be managed is

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that which is critical to the company--that which adds value to your

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products or to your services.

Here are some examples:

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Knowledge of a particular job, such as how to fix a fault in a piece of

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critical manufacturing equipment.

Knowledge of who knows what in a company, who solved a similar

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problem last time.

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Knowledge of who is best to perform a particular job or task, who

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has the latest training or best qualifications in a particular subject.

Knowledge of corporate history--has this process been tried before,

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what was the outcome?

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Knowledge of a particular customer account and knowledge of

similar customers.

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Knowledge of how to put together a team that can work on a project,

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who has worked successfully together in the past, what skills were

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needed on similar projects.

The three Pillars of Knowledge Management are Technology, Process and People.

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The objectives of Knowledge Management can be briefed as creating knowledge

repositories, improving knowledge access, enhancing the knowledge environment

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and managing knowledge as an asset.

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FRAMEWORK FOR KNOWLEDGE MANAGEMENT:

The knowledge management framework contains four elements:

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1. business drivers behind the need ("why"),

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2. content ("what"),

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3. people ("who"), and

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4. The approach ("how").

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"Why?" Knowledge management can be very expensive and time consuming;

therefore, these solutions have to align with an organization's overall goals and

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objectives.

"What?" Content needs to be identified, captured and categorized for easy reuse

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and adaptation.

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"Who?" Knowledge management must identify and develop expertise within the

organization.

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"How?" Technology has been an innovating force in emerging approaches to

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knowledge

management.

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ACTIVITIES IN MANAGING KNOWLEDGE:

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The act of managing knowledge can be characterized by the following four

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activities:

1. Acquire knowledge (learn, create, or identify);

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2. Analyze knowledge (assess, validate, or value);

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3. Preserve knowledge (organize, represent, or maintain); and

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4. Use knowledge (apply, transfer, or share).

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These activities do not exist in isolation. Instead, you can think of them as a cycle,
as shown in Figure. This can be viewed as follows:

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KM CYCLE

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(Source: THE ECONOMIC INTELLIGENCE UNIT 2006)

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At a recent workshop held at Cambridge University in England, a group of people

active in knowledge management and artificial intelligence identified the main

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activities needed by a knowledge management system. These were mapped to

artificial intelligence methods or techniques. The main knowledge management

activities were identified as the acquisition, analysis, preservation, and use of

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knowledge.

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Case-based reasoning is a methodology for supporting knowledge management. It

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is not important now that you know what. CBR is or how it works; this will be

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explained in the next chapter.

The classic definition of CBR:

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"A case-based reasoner solves problems by using or adapting solutions to old

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problems."

Riebeck, C.K., & Schank, R. (1989). Inside Case-Based Reasoning. Erlbaum,

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Northvale, NJ.

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Knowledge Management, in contrast, can be about documenting and sharing what

is through activities such as:

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Knowledge audits: Determining exactly what intellectual capital exists in the

company at a given point in time. Knowledge audits can take the form of informal

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interviews, such as illustrated by Mary`s activities in the Medical Multimedia, self-

reporting formal paper-based surveys, or through group meetings with management

and employees.

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Collaboration: Formal task- or project-oriented groups designed to facilitate

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information sharing. Formal collaboration normally involves the participation of

employees who normally would not work together in the course of their regular

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work.

Communities of practice: Employees who share tasks, projects, interests, and goals,

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normally within a specific work area. For example, the programmers and artists in

Medical Multimedia formed two communities of practice, defined largely by their

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common work function. Communities of practice are generally self-forming,

dynamic entities.

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Knowledge mapping: A process of identifying who knows what, how the

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information is stored in the organization, where it`s stored, and how the stores of

information are interrelated.

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Mentoring: Experts sharing heuristics, values, and techniques with employees new

to processes within the company. Mentoring, like the formation of communities of

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practice, can be fostered by the corporation but not dictated.

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Social network analysis: The process of identifying who interacts with whom and

how information is communicated from one individual or group to another.

Storytelling: Otherwise known as the case-based method of teaching, storytelling is

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a way of communicating corporate values and other implicit forms of knowledge.

Training and development: The traditional method of dispersing explicit

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knowledge. However, in Knowledge Management, training and development

normally involves internal experts from different disciplines, as opposed to

professional trainers.

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7C MODEL:

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The new conceptual model for understanding organizational knowledge creation,
known as the 7C model, which suggests that

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The following seven Cs play a critical role in the creation of organizational

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knowledge:

Connection,

Concurrency,

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Comprehension,

Communication,

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Conceptualization, Collaboration, and Collective intelligence (Oinas-Kukkonen

2004).

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The model is based on the distinction of individual and organizational knowledge

and explicit and tacit knowledge. The 7C model suggests that the seven Cs, i.e.

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Connection, Concurrency, Comprehension, Communication, Conceptualization,

Collaboration, and Collective intelligence, play a central role in the knowledge

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creation process. The paper also argues that previous research has focused on the

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technology and organizational contexts, and many of the Web`s inherent key

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features have not been utilized to the extent they should. Better support for the

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largely neglected human-sensitive sub-processes of organizational knowledge

creation, Comprehension and Communication, may be achieved through deeper

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utilization of the Web`s hypertext functionality. Moreover, organizat ions may

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improve both their core business activities and improvement capabilities as well as

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search for competitive advantage from

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business alliances.

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MAIN ISSUES IN EVALUATION KNOWLEDGE MANAGEMENT

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SYSTEMS

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Comprehension

Collaboration

Collective

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intelligence

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and Communication

and Conceptualization

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and

Organizational impact

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customers

decision making

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revenue

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business processes

rationale

profitability

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product portfolios

reasoning

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return

on

investment

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product features

reuse of knowledge

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growth

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markets

productivity

market share

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ideas for future business

...

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customer

satisfaction

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recognizing key problems

employee

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satisfaction

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solving key problems

...

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...

shareholder value

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WHY IS KNOWLEDGE MANAGEMENT IMPORTANT IN TODAY'S

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BUSINESS CLIMATE?

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In the emerging economy, a firm's only advantage is its ability to leverage and

utilize its knowledge. Knowledge management is more of a strategy supported by

technology that can show a quantifiable, and sometimes substantial, return on

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investment. These are some reasons for requirement KM:

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1. KM helps you capitalize on intellectual capital.

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2. KM addresses your growing knowledge needs.

3. KM benefits your budget (in an up or down economy).

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4. Delaying a KM implementation puts you at a competitive disadvantage.

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5. KM self-service saves money and makes customers happy.

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Knowledge management solutions are now the most important strategic

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technologies for large companies, according to a new report and survey of European

executives by the Economist Intelligence Unit, sponsored by Tata Consultancy

Services. In the survey, 67% of companies cite knowledge management/business

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intelligence solutions as important to achieving their strategic goals over the next

three years. This compares with 63% that accord the same level of importance to

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new CRM solutions, and 35% that see mobile/wireless technology as vital.

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Considerations which drive Knowledge Management are:

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Making available increased knowledge content in the development and

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provision of products and services

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Achieving shorter new product development cycles

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Facilitating and managing organizational innovation

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Leverage the expertise of people across the organization

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Benefiting from 'network effects' as the number of productive connections

between employees in the organization increases and the quality of

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information shared increases

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Managing the proliferation of data and information in complex business

environments and allowing employees to rapidly access useful and relevant

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knowledge resources and best practice guidelines

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Facilitate organizational learning

Managing intellectual capital and intellectual assets in the workforce (such

as the expertise and know-how possessed by key individuals) as individuals

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retire and new workers are hired

A convincing sales pitch from one of the many consulting firms pushing

Knowledge Management as a solution to virtually any business problem,

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such as loss of market share, declining profits, or employee inefficiency

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ISSUES IN KNOWLEDGE MANAGEMENT:

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Knowledge Management involves maintaining as much of the knowledge worker`s

relevant knowledge for the corporation as possible.

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? A KM initiative must reflect the reality that knowledge workers vary in

knowledge, skills, and aptitude.

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? In evaluating the contribution of knowledge workers in the modern knowledge

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organization, there is a significant difference between knowing and doing.

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? The knowledge worker?management relationship can`t be left to chance but must

be managed.

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? A KM initiative must include investing in knowledge worker loyalty.

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? Continuing knowledge worker education is essential to maintaining the value

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delivered by knowledge workers.

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? Although communities of practice are self-organizing structures, management

should facilitate their formation and direction.

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? A new business model or management initiative, no matter how innovative and

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promising, must consider human behavior.

? A KM initiative represents additional overhead, much of which is borne by

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knowledge workers in their daily work.

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The Knowledge Management can be viewed in different perspectives. They are:

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KM as a Technology - Systems, Methods, Practices

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KM as a Discipline - Multidisciplinary, Integrative

KM as a Management Practic

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e and Philosophy - Focus on Effectiveness,

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Culture, and Stakeholders

KM as a Societal and Enterprise Movement - Focus on Broad Societal,

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Enterprise, and Personal Basic Values

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SIGNIFICANCE OF KNOWLEDGE MANAGEMENT:

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Knowledge is available and leveraged amongst different parts of the

organization o Employees in distant locations are able to collaborate

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o Activity or process times are positively impacted through the instant

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availability of

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o knowledge

o Knowledge Management is information put to work

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Human Interaction is the focal point surrounding the collection, distribution

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and reuse of information

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Decision-making is facilitated by the almost immediate availability of

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information and the tools to analyze it

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Helps maintain an organization`s intellectual capital

An employee`s knowledge about a customer, solution or process is available

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to the entire organization

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Attrition has less of an impact on the organization since an individual`s

knowledge is already captured

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CRITICAL FACTORS OF SUCCESS FOR KM:

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People: concept and change management

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Shared Vision

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Alignment with Business Strategy

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Leadership and Sponsor Support

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Early Success

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Incentive and Reward System

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Enabling Technology

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TEN PRINCIPLES OF KM FOR SUCCESS:

1. KM is a discipline

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2. One champion is not enough

3. Cultural change isn't automatic

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4. Create a change management plan

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5. Stay strategic

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6. Pick a topic, go in-depth, and keep it current

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7. Don't get hung up on the limitations

8. Set expectations or risk extinction

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9. Integrate km into existing systems

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10. Educate the self-service users

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KNOWLEDGE MANAGEMENT PRACTICES (KMP's) IN GHANA:

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Knowledge management practices have facilitated innovative performance and to

the productivity of industries. Some KMPs are

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promoting a culture of information and knowledge sharing

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motivating employees and executives to remain with the firm

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forging alliances and partnerships for knowledge acquisition

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implementing written knowledge management rules

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There exist certain constraints to the development. They are the poor linkage

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between knowledge production and economic systems, inadequate human capital,

inadequate investment in science and technology infrastructure and ineffective

paths of technology innovation

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Some strategies have been recommended for the development of GHANA. They

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are raising the potential pool of skilled labor, improving the science and technology

infrastructure and

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creating an enabling environment for innovation in private sector industrial firms

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KNOWLEDGE MANAGEMENT LEADERSHIP:

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In order to lead the organizations which tend to adopt the knowledge management

practices it becomes essential to have a proper and effective leadership. Like the

definition of Knowledge Management, the types and roles of knowledge leadership

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in a corporation are usually defined on a case-by- case basis. Although there are

dozens of terms ascribed to knowledge leaders by consulting firms, the five main

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categories of knowledge leadership and their roles in the corporation are:

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1. Chief knowledge officer (CKO). A strategic, senior management position

focused on promoting, communicating, and facilitating KM practices in the

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corporation. The highly visible CKO typically reports directly to the CEO but may

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report to the CIO.

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2. Knowledge analyst. A tactical, lower- to midlevel position that involves learning

and personally disseminating the best practices of the organization. Knowledge

analysts may use technologies to accumulate and manage knowledge, but the

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technologies are for their personal use only. The risk of relying on knowledge

analysts is that they can walk away with the best practices of the corporation, with

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no record for those left behind to follow.

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3. Knowledge engineer. A tactical, lower-level position that is focused on collecting

information from experts and representing it in an organized form, typically in

computer-based systems, that can be shared and stored in the corporation.

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Knowledge engineers frequently form the interface between employees and

computer technologies, such as expert systems--programs that imitate the decision-

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making abilities of experts.

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4. Knowledge manager. A tactical, midlevel position that involves coordinating the

work of knowledge engineers and analysts, especially in larger corporations.

Knowledge managers may report to the CKO, CIO, or CEO.

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5. Knowledge steward. A tactical, low-level, and often temporary or informal

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position normally associated with smaller companies. Compared to the other forms

of knowledge leadership, knowledge stewards have the least formal experience with

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KM principles and usually have other, primary responsibilities in the corporation.

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Of the five general forms of leadership, the chief knowledge officer is typically the

most visible, least understood, and highest paid member of any KM initiative.

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Unlike senior managers, a CKO typically has no underlying power base and

minimal support staff, and can`t make significant decisions without first being

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empowered by senior management.

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The above are the different types of leaderships in order to implement the

knowledge management in any organizations.

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MIROSOFT:

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In the age of e-commerce, few brands have a more commanding presence than

Microsoft. For millions of people and hundreds of thousands of companies around

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the globe, Microsoft operating systems and software applications are indispensable

components of their work and home environments. But that extraordinary presence

comes with an equally compelling challenge. As a direct consequence of the

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company`s scope and market penetration, Microsoft must grapple with one of the

industry`s most daunting customer service loads. This vignette dramatically shows

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the benefits of knowledge management using an organizational memory.

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Microsoft`s strategy encompassed two important tactical moves.

First, the company`s three major contact points were consolidated into a single

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channel for all customers.

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Second, customer service representatives were trained as knowledge brokers,

tasked with handling inquiries across all products, programs, and services, rather

than relying on a procedure that routed the customer to an appropriate specialist.

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The overall goal was to drive up first contact resolution and improve the

customer experience. From the outset, it was clear that this strategy relied on us

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being able to implement a knowledge management system that would put all the

information on our

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products, programs, and services at the agents` fingertips.

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Helen Pickup, Director of Microsoft`s Customer Care Centre in Glasgow, Scotland.

After reviewing a number of technologies, Microsoft engaged Project Techniques, a

consulting firm, to help evaluate and identify the best solution. Microsoft`s call

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center outsourcer, Thus PLC, also participated in the evaluation process. The first

step in the

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process was to identify the type of organizational memory that would satisfy

Microsoft`s requirements. Project Techniques reviewed the relative merits of each

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of the main knowledge management technologies: knowledge-based systems,

natural language search, and case-based reasoning (CBR). The goal was to find a

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tool that would provide both technical and non-technical agents with easy,

structured access to the knowledge base. This led them to select CBR over the other

available technologies.

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Following an extensive evaluation of CBR applications, Microsoft chose eGain`s

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CBR product, which captures the full range of customer service, sales, and support

data in a single organizational memory and deploys that information across the

entire contact center. Furthermore, support agents can use different levels of the

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product based on factors such as user expertise, the customer`s situation, or the

communication medium (for example, online customer self-service, live Web

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collaboration, and email).

One of the most important advantages offered by CBR technology lies in its natural,

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conversational interface. Support agents are provided with information structured to

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mimic the way people think and speak. Other information retrieval applications,

such as

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keyword search systems, typically are not equipped with sophisticated search

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refinement capabilities. As a result, keywords often return too many hits, and

misspelled or incorrect keywords return none. With CBR, when the agent fails to

find a solution on the first attempt, the application will ask a further question

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designed to refine the search, similar to the way people engage in conversation.

Once the application was deployed in the call center, Microsoft managers

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discovered another important by-product of CBR technology, namely, its user-

friendliness.

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Within nine months following the implementation of a CBR knowledge

management system, Microsoft reported:

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A10 percent improvement in overall customer satisfaction rating;

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A 28 percent increase in first-time-fix success rate;

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A 13 percent increase in the agent is informed customer survey score;

A significant reduction in the time required to train ne

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w agents, as well as to

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elevate existing agent skill sets to the expert level;

A much wider range of customer care issues handled by individual agents,

who also delivered more consistent responses, regardless of the problem.

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Summarizing Microsoft`s venture into knowledge management, Helen Pickup

declared, We are confident that knowledge management is key to success in the

customer care arena. We expect to continue investment in this area.

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TOYOTA:

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Toyota's KM practices were considered unique because KM was embedded in its

culture, unlike at most other enterprises where it was implemented as a separate and

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independent effort.

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KM initiatives in Toyota are

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Toyota University

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Toyota institute

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Global production center

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Toyota global knowledge center

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TCS:

TCS were rated on eight knowledge performance parameter and was one of the 14

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winners in Asia`s Most Admired Knowledge Enterprises (MAKE) Study 2005

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TCS was awarded as the best practice in KM, by panel of Asian Fortune 500 Senior

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Executive and renowned KM experts.

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The main objective of TCS was focused on locating, organizing, sharing and

transferring knowledge for the benefits of the employee and clients spread

throughout the world

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3M:

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3M in the U.S. has a reputation for encouraging new ideas and turning those ideas

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into products and profits. CEO Livio DeSimone is to have ten percent of the

company`s revenues generated by products less than a year old. Beliefs and values

at 3M have encouraged knowledge transfer and led to significant investments in

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information technology for knowledge transfer among knowledge workers. A

strong culture of knowledge management permeates 3M Corporation`s operations.

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The company actively encourages new product development by requiring that 30

150

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percent of annual sales come from products less than four years old. It has a history

of using its organizational knowledge base to spin off new businesses from existing

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technical platforms, and of sharing technical knowledge to communicate about

current product activities and statues. 3M is also using knowledge management to

make discoveries that can lead to new products (Turban et al., 2003).

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ACCENTURE:

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Accenture has more than 200 knowledge managers worldwide. For a large

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consulting company whose very product is knowledge, there is considerable

motivation to create a knowledge base to share accumulated know-how. For this

reason, Global Best Practices (GBP) knowledge base was created, a central

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repository of knowledge about world-class business practices. The GBP base

contains quantitative and qualitative information about how companies achieve

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best-in-the-world standards of performance in activities that are common to most

companies (Turban et al., 2003)

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AT&T:

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AT&T has built an online directory of expertise, mapping who knows what.

Updating people profiles -- often by individuals themselves -- was found to be

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cheaper and more feasible than continuous editing, maintenance, and validation of

content. Furthermore, providing a directory to the knowers is likely to lead to either

the knowledge sources or the knowledge possessors.

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Thus we see that Knowledge Management involves rethinking how management

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relates to employees. At issue is how to reward the mentors and other

knowledgeable employees for the incremental value they create in the company 151

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through sharing their knowledge. In many regards, the basic principles of

Knowledge Management go against human nature, in that employees, as well as

managers, are naturally reluctant to give up their hard-won advantages. This

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reluctance to share the real core of information isn`t limited to business but is also

prevalent in academia, which is established around KM principles. Researchers

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often offer statistical summaries and generalizations instead of raw data, and the

technical details of leading edge technologies are rarely published in a timely

manner unless tenure or significant funding is at stake.

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Knowledge workers are central to the operation of a knowledge organization. Not

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only do they represent the greatest potential for multiplying the value of a company,

but they also represent the greatest risk to value loss. Furthermore, managing

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knowledge workers is challenging because of the competing goals of encouraging

knowledge sharing thorough communities of practice while maintaining control

over the general direction of the corporation through information hiding and

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filtering. For knowledge workers who represent a positive value multiplier,

providing consistent supportive feedback through the corporation`s touch points,

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investing in knowledge worker education when economically feasible, and

maintaining the processes associated with knowledge worker loyalty all maximize

the value that the knowledge worker can bring to the corporation.

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Knowledge Management begins with a practical implementation plan that

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adequately addresses people, process, and technology challenges, whether working

with vendors and developers or shifting the corporate culture to embrace the

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concept and reality of a knowledge organization. An insightful and capable senior

manager can recognize and appreciate predictors of a successful KM initiative and

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manage the potential risks involved. As long as stakeholder expectations are

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managed in a way that avoids the hype that kills other business innovations, the

prospects for a successful KM implementation, and for the KM industry as a whole,

look exceptionally bright.

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ACTIVITY :

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1. What do you mean by Knowledge Management ?

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2. Discuss in detail the critical factors and principles for the success
of Knowledge

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Management .

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3. Briefly highlight the significance of Knowledge Management.

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4. Enumerate in detail the issues of Knowledge Management .

5. Explain in detail the activities of sharing and documenting the Knowledge

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in Knowledge Management .

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___________________________________________________________________

_____

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Force Field Automation :

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In today`s competitive environment, network companies are under constant

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pressure to improve customer service while reducing costs; in field operations this

drives a necessity for utilities and communication businesses to optimize resource

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assignment and dispatching.

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153

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GE Energy`s integrated solution suites for network companies includes Field Force

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Automation (FFA), a comprehensive software application combining proven,

optimal resource management and superior street routing. In addition, FFA

software's powerful integration capabilities and use of standard protocols can

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improve field services by enhancing and automating business processes across a

variety of work management and corporate systems. FFA delivers significant

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efficiencies and cost savings to technical field service teams within large and small

organizations. FFA streamlines the flow of work orders throughout the entire

organization, including creation, assignment, dispatch, monitoring, field activity

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reporting, and charge accounting for activities such as:

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? Inspection

? Repair

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? Maintenance

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? Outage restoration

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? Meter reading

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? Service installation and testing

? Trouble call response

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As field-based work progresses, status updates are returned to the source system,

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ensuring that all members of the organization are updated and ready to provide

customers and co-workers with timely, accurate information. FFA also promotes

better communication between dispatchers and field teams by providing technical,

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commercial and spatial information. Data is more accessible and reliable and FFA

reduces the amount of voice communication required to only the essential

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emergency information, minimizing dispatch room disruption. Easily accessible to

senior managers, dispatchers and service technicians, FFA is supplied with a

configured Internet portal, providing optimized field operations via the Internet.

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154

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FFA Product Description

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The three major components within the core package of FFA are:

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? Resource planning that lays the building blocks for effective scheduling:

a. Stores individual and crew employee calendars, start/end work

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location,

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Organizational structure, skill set, wages, preferences, and

equipment held ? Models workforce shift/rotation, holiday, illness,

training, and overtime

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considerations

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b. Analysis of company policies and collective agreements affecting

staff deployment

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c. Full support for multi-person crews and individuals required for a

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specific task

? Optimized scheduling differentiates FFA by combining resource intelligence,

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planning, and modeling with advanced street level routing:

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d. Schedules resources using manual, automatic, and semi-automatic

modes

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with heuristic algorithms

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e. Automatic, optimal selection of materials and workers based on

complex

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resource analysis, including advanced real time analysis such as

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proximity

and equipment of currently deployed crews.

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- Optimized routing, beyond point-to point distances, with street

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level information, such as:

155

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- One-ways

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- Average speed

- Traffic signals

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- Real-time information (if available) such as traffic flow,

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accidents,

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Closures, etc.

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? Dispatch management delivers optimized crew deployment with these abilities:

?Web-based dispatch board and Gantt chart

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- dispatcher has full control from calendar management to

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technician login/logoff

- Track employee tasks on dispatch board with map-based

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dispatching and GPS/AVL updates

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-

View overall operations or detail on work and mobile

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workers

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- Alert dispatchers to priority events

- Automated work status updates

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Flexible, Automated Scheduling

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Automated scheduling in FFA is achieved by defining rules that can take into

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account:

? Personnel training and qualifications

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? Individual responsibilities

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? Each team`s material and equipment

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? Rapid response

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? Crew proximity

? Other business-specific factors

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156

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With FFA, the dispatcher can overrule the automatically generated schedules and

add or prioritize work orders manually. In order to accommodate prioritized

unplanned work orders, automatic re-scheduling of low priority tasks is also

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available. This is essential, when, for example, a SCADA system generates

emergency or higher priority tasks than those currently being scheduled or

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dispatched. Configuration of user-defined alarms or notices ensure the dispatcher is

instantly aware of any issues and can take relevant

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actions, rescheduling work orders if necessary. For low-priority routine

maintenance tasks, the workflow engine provides configurable workflows for

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automating the specific processes.

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Features

? Automate work order lifecycle from design through project completion

--- Content provided by‌ FirstRanker.com ---

? Manage all levels of work orders with an intrinsic hierarchy that supports projects,
service orders, work orders, actions, and routine and emergency events

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? Includes street-level routing database

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? Flexible scheduling to include completely automated, semi automated, and manual

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Operations

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? Ability to integrate to other work order generating systems and enterprise systems

? CIS, OMS, WMS, EAM, ERP

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? Collect work order status in real-time

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? Manage jeopardy and keep alert of workload imbalances

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? Offer real-time appointment booking with configurable window times

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Benefits

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? Reduce dispatch times associated with manual crew assignment by 33%

157

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? Cost savings from 25-35% on overall field operations, recognized in as few as

eight

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months

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? Improve operating efficiencies by reducing the number of dispatchers necessary to

handle high volume situations (storms, events)

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? Decrease emergency crew personnel deployed by as much as 15-20%

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? Reduce radio and phone traffic for system operators performing system updates

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that crews can perform directly

? Improve the quality of reliability data by reducing voice communications

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necessary and

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establishing a single point of data by central dispatchers

? Increase customer satisfaction due to more timely updates of restoration status

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? Eliminate the complexity and high cost of acquiring and maintaining point

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software products from different vendors and performing custom integration

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ACTIVITY :

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1. What do you mean by Force field Analysis? Discuss in detail the

major components within the core package of FFA.

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2. Briefly discuss the features and benefits of FFA.

--- Content provided by FirstRanker.com ---

___________________________________________________________________

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_____

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CRM links in e-Business: E-Commerce and Customer Relationships on the

Internet

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158

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ECRM

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With eCRM, manufacturers have the opportunity to take customer interaction to

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new levels of effectiveness by integrating customer information otherwise hoarded

by customer service, marketing, and sales departments and making it available

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across the organisation to improve the overall customer experience.

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Some large companies are gaining significant competitive advantage by using

Information Technology (IT) and business to analyze and manage their relationship

with each customer. This trend is relevant to many larger companies. While smaller

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companies tend to rely on people, rather than computers, to track and manage their

customer relationships, this trend is still relevant to them because: -

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Most IT driven changes in large companies sooner or later are adapted

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by progressive

smaller companies, as relevant software packages suited to the needs and budgets

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of SMEs are developed. Any SME planning an overall medium term eBusiness/IT

strategy

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thus needs to consider whether aspects of CRM are likely to be relevant to
that strategy.

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The ability of large companies to provide a holistic approach to customers may

partly

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erode one of the competitive advantages enjoyed by SMEs, namely their ability

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to provide a much more personalised service than their larger competitors.

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159

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CRM is the three-letter acronym for Customer Relationship Management.

CRM packages

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are software tools that allow the user to keep a record of all interactions with

a customer.

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Typical examples of these interactions are:

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Complaints

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Queries

Requests for Quotations

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Instructions and so on

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As the user is recording the interactions, the user can have access to all the

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customer information that exists on the system. Information such as:

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Account Balance and Transaction History;

Order Status;

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Shipping Status;

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And static details such as name, address, phone, email etc.The level of

information available is dependant on the level of functionality of the CRM tool or

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the degree of integration with the company ERP package. [ERP packages process

accounts, sales order processing, stock movements, purchases and so on. The CRM

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tool also has functionality:

4. To assign actions (arising out of an interaction ) to different users,

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5. Keep a record and status on all actions that have been taken against

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a particular

transaction .

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6. Classify an interaction as being 'open' until all the desired actions have

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been completed

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The strength of CRM is that any employee within the company can access

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the interaction

record at any time to review the status and update it. The customer cannot catch

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the employee, who has access to the CRM tool, unaware. This gives the customer

the ' VIP

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feeling' because the customer feels that every employee in the company is aware of

the

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customer and the customer's issues.

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CRM originally evolved from the recording and fixing of complaints to the current

level

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where packages are now available on the Internet . In the latest eCRM

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generation, the

customer may record the complaint and could change the customer's own

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static details

Using a web browser.

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CRM systems also allow for proactive dealings with potential and existing
customer [e.g.

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quotes] and electronic mail-shots. Records are kept of these interactions in the same

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way

as complaints and other 'reactive' interactions are stored.

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The normal operational transactions [such as sales order processing, order

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picking, dispatch, invoicing and so on] would not normally be stored on a CRM

tool as this functionality is readily available in ERP packages. However, some of

the Tier 1 CRM

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solutions have started to store this type of information also. The most well known

CRM tool is provided by Siebel Systems.

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Competitive advantage through CRM

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European manufacturers have been slow in adopting customer relationship

management.

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Without explicit retention goals, programs for improving customer loyalty go

nowhere with sub par business performance as a frequent result. But while many

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companies have such goals in place, fewer are achieving them. The success of many

non-European manufacturers in Europe over the last two decades has a lot to do

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with their forward-thinking practices in managing their customer relationships.

With customers embracing "imported" brands like Nike, Procter & Gamble, and

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Colgate-

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Palmolive in consumer products, Dell in personal computers, and General Electric

in

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appliances, many European manufacturers' notions about customer loyalty are being

called into question. The impact of competitors that excel at anticipating and serving

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customer needs is beginning to be felt. Despite many European manufacturers'

hesitation in adopting CRM practices and principles to date, they now have a unique

opportunity to quickly take a lead position. Having sat on the sidelines and let the first

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wave of CRM initiatives pass them by; these companies can now use the Internet to

rethink their customer interactions from scratch. Rather than getting on the traditional

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CRM bandwagon, they can leapfrog the competition by leveraging the more advanced

capabilities of customer relationship management in the digital world: eCRM. Indeed,

eCRM gives companies far greater opportunities to improve marketing and customer

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satisfaction than traditional CRM approaches. Most traditional CRM initiatives predate

the World Wide Web and tend

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to be in silos such as customer service, sales, or marketing functions. For example,

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many companies installed CRM software in their customer call centers to create

deep databases on customers, repair and other service records, and the company's

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product and service information. By implementing CRM, these companies made

improvements in certain narrow areas of the business. For example, their service

reps became more knowledgeable about each customer and better able to handle

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their issues after the purchase. But the primary benefits of the system were limited

to the customer service function often the call centre representatives. Sales people

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typically did not gain access to the data, which they might have used to help make a

sale.

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Traditional CRM rarely provided a consistent enterprise-wide picture of the

profitability and needs of individual customers. In essence, while helping give a

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better customer experience, those traditional CRM efforts did little to help

companies decide where to invest next or how to improve their product offerings or

sales process.

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As we discuss later, without this holistic, integrated, 360-degree view of the

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customer, most of the value of CRM efforts dissipates quickly as competitors have

little trouble in catching up. Flexible enterprise-wide eCRM systems can create a

"digital loyalty cycle" across marketing, sales, and customer service. This provides

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customers with the optimal price, quality, quantity, brand, pre-sales and after-sales

service experience. This is

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becoming the benchmark for successful customer relationship management in the

digital age.

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With eCRM, manufacturers have the opportunity to take customer interaction to

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new levels of effectiveness by integrating customer information otherwise hoarded

by customer service, marketing, and sales departments and making it available

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across the organisation to improve the overall customer experience. Traditional

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knowledge and analysis of product and geographic markets are becoming relatively

less useful as the understanding of individual customers, their purchase history,

requirements, and lifetime value is becoming the ultimate unit of analysis. The

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battleground is moving from scale and market-share to customer profitability and

wallet-share. Without investments in stronger eCRM capabilities, however, a

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complete, actionable picture of individual customers is often unavailable for most

companies. This means that strategic

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marketing decisions today are often founded upon quicksand. As a result, customer

loyalty is becoming more and more a subject to the now infamous mouse click.

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An eCRM system or Web-based CRM system is fundamentally less cumbersome

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and less

expensive to implement than traditional CRM because eCRM can be extended more

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easily to users everywhere in the company through the Internet . As common

standards for exchanging product, service, and customer data emerge, such as

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eXtensible Markup

Language (XML) standards, partners in the sales and distribution channels can be

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linked

more easily to the system and share in the benefits. The cost savings can be

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sizeable. For

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example, GE estimates the cost of taking a phone order at around 5 for simple

products and as much as 80 for its higher-tech offerings. In contrast, an order placed

online costs an average 20-cent. With GE getting 20 million phone calls a year in its

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appliance business alone, the savings from Internet -based CRM technology could

become immense. But the value of eCRM goes way beyond cutting cost. The

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technology allows companies to capture customer feedback at more of the "touch

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points" between a company and its customers across channels and functions e.g.

meetings with sales people, customer service inquiries, purchases over the Internet ,

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customer surveys, user groups, and the like and use it to improve relationships and

value for individual customers.

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European manufacturers have been slower to adopt many key enterprise

technologies,

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such as the installation of an enterprise resource planning (ERP) system, for

effectively

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managing millions of customer interactions. Without an ERP system to track the

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status of a customer's order from the factory to the customer's door, a manufacturer

cannot tell a

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customer some of the most important things he or she wants to hear these days:

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Where is

my order and when do I get it?

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Unresponsiveness to customers' concerns, if not rectified, will threaten the

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sustainability of many manufacturers. The continuing integration and expansion of

the European market and the arrival of the Euro are both opportunities and threats.

Certainly, those forces have put European manufacturers on more of an equal

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footing with their competitors based elsewhere, particularly in the United States. An

even bigger factor pushing European industrial companies to get much better at

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managing customer relationships is the Internet .

The global communications network eliminates much of the age-old geographic and

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information advantage that many manufacturers have had over their customers.

Customers of everything from cars and appliances to computers and books can now

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get information on pricing, product features and other buying criteria from a broad

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array of sellers without leaving their home or office, and they can often complete

the transaction electronically.

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Unlike many services (such as hair cuts and hotel services), most manufacturing

products

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can be transferred across borders and are easily comparable across geographies in
terms

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of price, quality, quantity, delivery, and so forth.

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As consumers become more familiar with the Net, as bandwidth increases and
access cost

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falls, Internet usage will continue to soar. Even if consumers do not buy online, the

information they gain on the Internet can still affect prices. Companies must

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understand

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that, not unlike the impact of imports on competition, it takes only a small

percentage of total sales to go through Internet channels to seriously affect value

propositions, prices, and profits.

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From Product and Geography Focus To Customer - Centric Strategies

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The combined impact of the Euro and the Internet has highlighted pricing

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disparities across Europe and will no doubt begin to erode them for manufactured

and other internationally tradable goods and services. As manufacturers

traditionally have reaped the rewards from differential pricing strategies in each

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country and region, these developments will undoubtedly cause already slim profit

margins to become even slimmer. An interesting example of this is to compare

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prices online for the same technology items in different countries from multi-

national IT suppliers such as Dell.

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While many regional differences will persist within Europe such as those

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determined by

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culture, language, government policies, and payment systems manufacturers will

have to

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move beyond product and geography-centric sales, marketing, and customer service

practices and start to put the customer at the centre of attention. If increasingly

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knowledgeable customers can make price comparisons from country to country, the

only way for manufacturers to retain price premiums and increase shareholder value

will be to offer greater value through improved customer service and target

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customers with differentiated offerings. That is, they will have to maximize the way

they treat each and every customer or segment. The entire customer interaction,

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including what goes on after the sale, will become even more important. Customer

loyalty and retention are bound to become the ultimate platform for competition.

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Customer Loyalty and Profitable Growth

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Because it costs significantly more to continually attract new customers than to

retain the

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current ones, and because the value of most customer relationships increases over

time,

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companies that increase revenue without holding onto their best customers wind up

eroding profitability and, thus, shareholder value.

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When we look at the business performance of customer-centric manufacturers, we

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find clear indications of the underpinnings of success. Customer-centric

manufacturers are more likely to exceed their goals for return on assets and market

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share compared to non-customer centric companies. They are also much more likely

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to exceed key operational goals for inventory reduction, parts shortages, labour

costs, and organisational learning.

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Designing The Digital Loyalty Cycle

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If customer loyalty is the goal, eCRM is the tool. Although companies can use
eCRM to

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pursue benefits in any one part of the business, the greatest benefits come from
using it to

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link every operation in a business that affects the customer experience. Integrating

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and

leveraging efforts across pricing, product quality, marketing, sales, and customer

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service

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through the digital loyalty cycle will increasingly become the hallmark of

successful

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companies. By always working from a real-time perspective, for example, front-line

staff and strategic partners can continuously improve the way they interact with

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individual customers and segments. In doing so, they not only can improve the

customer experience, they can also improve the way feedback from customers is

leveraged across product development, manufacturing, marketing, sales, and

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service.

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When executed correctly, eCRM implementations are designed as a digital loyalty

cycle that continuously improves to create lasting competitive advantage. When a

manufacturer uses eCRM technology and redefines its business processes in

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customer acquisition and

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retention, it strengthens its capabilities in key areas that determine a customer's

purchase

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decision including pricing, product quality, marketing, sales, and customer service

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to create a virtuous, digital loyalty cycle. The impact of eCRM strategies is

beginning to show. In traditional call centres alone, eCRM lets companies shift

much of the people-intensive customer service transactions to online transactions

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that let customers serve themselves if they wish. Considering the enormous cost of

running call centres to serve customers in multiple languages and cultures and legal

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environments across Europe, the Internet provides a permanent but flexible solution

to handle this diverse and costly set of

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requirements. Content created in one country can be translated through software

adapted to other countries in near real-time.

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The experience of System Label, the Irish specialist printer of industrial labels

equipment, demonstrates how eCRM can increase responsiveness to customer

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requirements. Since implementing several system developments including a new

eCRM package, the company often turns around orders faster than its 5 day target at

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the outset of the project. With eCRM, customer-centric manufacturers can use

customer information to better predict customers' buying patterns, which allows

them to better manage pricing and marketing decisions in real time. Behind the

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scenes of the eCRM systems are conventional, perhaps, but crucial components for

success: business processes, technologies, and people. When it comes to business

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processes, manufacturing companies must understand the customer loyalty cycle

and use an integrated approach across the organisation to strengthen loyalty. That

is, they must synchronize and differentiate everything that affects an individual

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customer's loyalty: brand, quality, price, sales, and service experience. It is no small

task, but by first focusing on the customers that are most profit-able and key to

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future survival, companies can leverage eCRM where it matters most.

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In terms of technology, companies must use IT to gather, analyze and disseminate

information from customers across the enterprise. Enterprise resource planning

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(ERP)

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systems can serve as the foundation. For some, a web-based approach is likely to be
both

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faster and cheaper. Leveraging Internet technology eases the implementation

burden and

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increases flexibility in designing global and regional manufacturing, distribution,

and service networks. The same comparison can be made between traditional CRM

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and eCRM. That is, a typical installation of a CRM system a few years ago would

take, say, around 6-12 months. Today, with eCRM, a similar, enhanced and more

flexible system based on Internet technology is not only less expensive to install but

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also much quicker, taking just about 3 to 6 months depending on the specific

circumstances of the company.

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People are key to serving customers well. Companies must therefore invest in

people

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through continual learning, such as just-in-time and cross training, to ensure that

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they have the skills and mindset to achieve customer loyalty goals. In addition,

incentives should measure and reward customer satisfaction and loyalty. Base

wages and benefits may have to be upgraded, and knowledge systems should be

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supported. Successful companies understand that employee loyalty is crucial to

building customer loyalty.

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Overcoming Real and Imagined Barriers to eCRM

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Becoming customer-centric does not happen overnight. It requires moving the

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supply chain from a "push" to a "pull" that is, shifting from producing and

distributing products according to internal forecasts to building and delivering to

meet actual customer demand in a profitable manner. This shift requires thinking of

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the "supply chain" as the "demand chain".

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The challenges to manufacturers are significant but unavoidable. The good news

is that

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many barriers to change are more perceived than real. Take, for example, the

lack of a

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common payment system in Europe and lack of common rules governing financial

institutions. If a company wants to set up accounts with the same bank in each EU

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country, it may need as many as 900 signatures. Some say this will prevent the

Internet from facilitating the free flow of goods and services across country lines.

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But EU countries have already adopted significant legislative changes designed to

facilitate both the single European Market and eBusiness.

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The one barrier to eCRM that is very real and very big is complacency. Manufacturers

are at risk of losing the game if they cannot change their mindset and take advantage of

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new tools and technologies to become more customer-oriented. Companies often still

believe that if you make a good product, people will buy it. If they continue to focus

only on the design and manufacture of products, they will miss important opportunities

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to learn more about what their customers really want and to provide the profitable

after-sale services that customers increasingly need and demand. If, on the other hand,

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they are willing to view their operations more broadly by adopting eCRM technologies

to get closer to customers, they can strengthen their customer interactions, grow, and

prosper. In the case of Zomax Ireland, for example, it was customers that drove the

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company to embrace eCRM

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and other technologies and this is likely to be the experience of many

Irish businesses over the coming years.

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The arguments manufacturers typically make for skimping on customer retention

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practices and capabilities like eCRM are rapidly weakening. The challenge now

is to use technology to lead the next revolution by leveraging the online loyalty

and creating sustainable business models.

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Enterprise resource planning

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Enterprise Resource Planning systems (ERPs) integrate (or attempt to integrate)

all data and processes of an organization into a single unified system. A typical

ERP system will use multiple components of computer software and hardware to

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achieve the integration. A key ingredient of most ERP systems is the use of a

single, unified database to store data for the various system modules.

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The term ERP originally implied systems designed to plan the utilization of

enterprise-wide resources. Although the acronym ERP originated in the

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manufacturing environment, today's use of the term ERP systems has much

broader scope. ERP systems typically attempt to cover all basic functions of an

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organization, regardless of the organization's business or charter. Business, non-

profit organizations, non governmental organizations, governments, and other large

entities utilize ERP systems.

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Additionally, it may be noted that to be considered an ERP system, a software

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package generally would only need to provide functionality in a single package

that would normally be covered by two or more systems. Technically, a software

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package that provides both Payroll and Accounting functions (such as

QuickBooks) would be considered an ERP software package.

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However, the term is typically reserved for larger, more broadly based applications.

The introduction of an ERP system to replace two or more independent applications

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eliminates the need for external interfaces previously required between systems,

and provides additional benefits that range from standardization and lower

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maintenance (one system instead of two or more) to easier and/or greater reporting

capabilities (as all data is typically kept in one database).

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Examples of modules in an ERP which formerly would have been stand-alone

applications include: Manufacturing, Supply Chain, Financials, CRM, Human

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Resources, and Warehouse Management.

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Overview of ERP :

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Looking more closely at ERP systems, a key factor is the integration of data from

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all aspects of an organization. To accomplish this, an ERP system typically runs

on a single database instance with multiple software modules providing the

various business functions of an organization.

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Some organizations - typically those with sufficient in-house IT skills to integrate

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multiple software products - choose to only implement portions of an ERP system and

develop an external interface to other ERP or stand-alone systems for their other

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application needs. For instance, the PeopleSoft HRMS and Financials systems may be

perceived to be better than SAP's HRMS solution. And likewise, some may

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perceive SAP's manufacturing and CRM systems as better than PeopleSoft's

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equivalents. In this case these organizations may justify the purchase of an ERP

system, but choose to purchase the PeopleSoft HRMS and Financials modules from

Oracle, and their remaining applications from SAP.

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This is very common in the retail sector, where even a mid-sized retailer will have

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a discrete Point-of-Sale (POS) product and financials application, then a series of

specialised applications to handle business requirements such as warehouse

management, staff rostering, merchandising and logistics.

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Ideally, ERP delivers a single database that contains all data for the software

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modules, which would include:

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Manufacturing

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Engineering, Bills of Material, Scheduling, Capacity, Workflow

Management, Quality Control, Cost Management, Manufacturing Process,

Manufacturing Projects, Manufacturing Flow

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Supply Chain Management

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Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain

--- Content provided by FirstRanker.com ---

Planning, Supplier Scheduling

Financials

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General Ledger, Cash Management, Accounts Payable,

--- Content provided by⁠ FirstRanker.com ---

Accounts Receivable, Fixed Assets

--- Content provided by‍ FirstRanker.com ---

Projects

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Costing, Billing, Time and Expense, Activity Management

--- Content provided by FirstRanker.com ---

Human Resources

--- Content provided by FirstRanker.com ---

Human Resources, Payroll, Training, Time & Attendance, Benefits

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Customer Relationship Management

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Sales and Marketing, Commissions, Service, Customer Contact and

Call Center support

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Data Warehouse

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and various Self-Service interfaces for Customers, Suppliers, and Employees

--- Content provided by‌ FirstRanker.com ---

Enterprise Resource Planning is a term originally derived from manufacturing

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resource planning (MRP II) that followed material requirements planning (MRP).

MRP evolved into ERP when "routings" became major part of the software

architecture and a company's capacity planning activity also became a part of the

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standard software activity. ERP systems typically handle the manufacturing,

logistics, distribution, inventory, shipping, invoicing, and accounting for a

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company. Enterprise Resource Planning or ERP software can aid in the control of

many business activities, like sales, marketing, delivery, billing, production,

inventory management, quality management, and human resources management.

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ERPs are often incorrectly called back office systems indicating that customers and

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the general public are not directly involved. This is contrasted with front office

systems like customer relationship management (CRM) systems that deal directly

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with the customers, or the eBusiness systems such as eCommerce, eGovernment,

eTelecom, and eFinance, or supplier relationship management (SRM) systems.

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ERPs are cross-functional and enterprise wide. All functional departments that are

involved in operations or production are integrated in one system. In addition to

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manufacturing, warehousing, logistics, and Information Technology, this would

include accounting, human resources, marketing, and strategic management.

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ERP II means open ERP architecture of components. The older, monolithic

ERP systems became component oriented.

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EAS - Enterprise Application Suite is a new name for formerly developed ERP

systems which include (almost) all segments of business, using ordinary

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Internet browsers as thin clients.

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Before

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Prior to the concept of ERP systems, departments within an organization would

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have their own computer systems. For example, the Human Resources (HR)

department, the Payroll (PR) department, and the Financials department. The HR

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computer system (Often called HRMS or HRIS) would typically contain

information on the department, reporting structure, and personal details of

employees. The PR department would typically calculate and store paycheck

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information. The Financials department would typically store financial transactions

for the organization. Each system would have to rely on a set of common data to

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communicate with each other. For the HRIS to send salary information to the PR

system, an employee number would need to be assigned and remain static between

the two systems to accurately identify an employee. The Financials system was not

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interested in the employee level data, but only the payouts made by the PR systems,

such as the Tax payments to various authorities, payments for employee benefits to

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providers, and so on. This provided complications. For instance, a person could not

be paid in the Payroll system without an employee number.

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After

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ERP software, among other things, combined the data of formerly disparate

applications. This made the worry of keeping employee numbers in

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synchronization across multiple systems disappear. It standardised and reduced the

number of software specialties required within larger organizations.

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Best Practices

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Best Practices were also a benefit of implementing an ERP system. When

implementing an ERP system, organizations essentially had to choose between

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customizing the software or modifying their business processes to the "Best

Practice" functionality delivered in the vanilla version of the software.

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Typically, the delivery of best practice applies more usefully to large organizations

and especially where there is a compliance requirement such as IFRS, Sarbanes-

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Oxley or Basel II, or where the process is a commodity such as electronic funds

transfer. This is because the procedure of capturing and reporting legislative or

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commodity content can be readily codified within the ERP software, and then

replicated with confidence across multiple businesses who have the same business

requirement.

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Where such a compliance or commodity requirement does not underpin the

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business process, it can be argued that determining and applying a best practice

actually erodes competitive advantage by homogenizing the business compared to

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everyone else in their industry sector.

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Evidence for this can be seen within EDI, where the concept of best practice, even

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with decades of effort remains elusive. A large retailer, for example, wants EDI

plus some minor tweak that they perceive puts them ahead of their competition.

Mid-market companies adopting ERP often take the vanilla version and spend half

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as much as the license cost doing customisations that deliver their competitive edge.

In this way they actively work against best practice because they perceive that the

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way they operate is best practice, irrespective of what anyone else is doing.

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Implementation

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Because of their wide scope of application within a business, ERP software systems

are typically complex and usually impose significant changes on staff work

practices (if they did not, there would be little need to implement them).

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Implementing ERP software is typically not an "in-house" skill, so even smaller

projects are more cost effective if specialist ERP implementation consultants are

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employed. The length of time to implement an ERP system depends on the size of

the business, the scope of the change and willingness of the customer to take

ownership for the project. A small project (eg, a company of less than 100 staff)

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may be planned and delivered within 3 months; however, a large, multi-site or

multi-country implementation may take years.

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The most important aspect of any ERP implementation is that the company

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who has purchased the ERP product takes ownership of the project.

To implement ERP systems, companies often seek the help of an ERP vendor or of

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third-party consulting companies. These firms typically provide three areas of

professional services: Consulting, Customisation and Support.

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Consulting Services

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The Consulting team is typically responsible for your initial ERP implementation

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and subsequent delivery of work to tailor the system beyond "go live". Typically

such tailoring includes additional product training; creation of process triggers and

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workflow; specialist advice to improve how the ERP is used in the business; system

optimisation; and assistance writing reports, complex data extracts or implementing

Business Intelligence.

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The consulting team are also responsible for planning and jointly testing the

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implementation. This a critical part of the project, and one that is often overlooked.

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Consulting for a large ERP project involves three levels: systems architecture,

business process consulting (primarily re-engineering) and technical consulting

(primarily programming and tool configuration activity). A systems architect

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designs the overall dataflow for the enterprise including the future dataflow plan. A

business consultant studies an organization's current business processes and

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matches them to the corresponding processes in the ERP system, thus 'configuring'

the ERP system to the organization's needs. Technical consulting often involves

programming. Most ERP vendors allow modification of their software to suit the

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business needs of their customer.

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For most mid-sized companies, the cost of the implementation will range from around

the the list price of the ERP user licenses to up to twice this amount (depending on the

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level of customisation required). Large companies, and especially those with multiple

sites or countries, will often spend considerably more on the

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implementation than the cost of the user licenses -- three to five times as more is not

uncommon for a multi-site implementation.

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Customisation Services

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Customisation is the process of extending or changing how the system works by

writing new user interfaces and underlying application code. Such customisations

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typically reflect local work practices that which are not currently in the core

routines of the ERP system software.

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Examples of such code include early adopter features (e.g., mobility interfaces were

uncommon a few years ago and were typically customised) or interfacing to third

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party applications (this is 'bread and butter' customisation for larger

implementations as there are typically dozens of ancilliary systems that the core

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ERP software has to interact with). The Professional Services team is also involved

during ERP upgrades to ensure that customisations are compatible with the new

release. In some cases the functionality delivered via previous a customisation may

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have been subsequently incorporated into the core routines of the ERP software,

allowing customers to revert back to standard product and retire the customisation

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completely.

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Customizing an ERP package can be very expensive and complicated, because

many ERP packages are not designed to support customization, so most businesses

implement the best practices embedded in the acquired ERP system. Some ERP

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packages are very generic in their reports and inquiries, such that customization is

expected in every implementation. It is important to recognize that for these

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packages it often makes sense to buy third party plug-ins that interface well with

your ERP software rather than reinventing the wheel.

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Customisation work is usually undertaken as bespoke software development on a

time and materials basis. Because of the specialist nature of the customisation and

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the 'one off' aspect of the work, it is common to pay in the order of $200 per hour

for this work. Also, in many cases the work delivered as customisation is not

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covered by the ERP vendors Maintenance Agreement, so while there is typically a

90-day warranty against software faults in the custom code, there is no obligation

on the ERP vendor to warrant that th code works with the next upgrade or point

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release of the core product.

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One often neglected aspect of customisation is the associated documentation. While

it can seem like a considerable -- and expensive -- overhead to the customisation

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project, it is critical that someone is responsible for the creation and user testing of

the documentation. Without the description on how to use the customisation, the

effort is largely wasted as it becomes difficult to train new staff in the work pratice

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that the customisation delivers.

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Maintenance and Support Services

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Once your system has been implemented, the consutling company will typically

enter into a Support Agreement to assist your staff keep the ERP software running

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in an optimal way. A Maintenance Agreement typically provides you rights to all

current version patches, and both minor and major releases, and will most likely

allow your staff to raise support calls. While there is no standard cost for this type

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of agreement, they are typically between 15% and 20% of the list price of the ERP

user licenses.

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Advantages

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In the absence of an ERP system, a large manufacturer may find itself with many

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software applications that do not talk to each other and do not effectively interface.

Tasks that need to interface with one another may involve:

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design engineering (how best to make the product)

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? order tracking from acceptance through fulfillment

the revenue cycle from invoice through cash receipt

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managing interdependencies of complex Bill of Materials

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tracking the 3-way match between Purchase orders (what was ordered),

Inventory receipts (what arrived), and Costing (what the vendor invoiced)

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the Accounting for all of these tasks, tracking the Revenue, Cost and Profit

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on a granular level.

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Change how a product is made, in the engineering details, and that is how it will

now be made. Effective dates can be used to control when the switch over will

occur from an old version to the next one, both the date that some ingredients

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go into effect, and date that some are discontinued. Part of the change can

include labeling to identify version numbers.

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Computer security is included within an ERP to protect against both outsider crime,

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such as industrial espionage, and insider crime, such as embezzlement. A data

tampering scenario might involve a terrorist altering a Bill of Materials so as to put

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poison in food products, or other sabotage. ERP security helps to prevent abuse

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as well.

Disadvantages

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Many problems organizations have with ERP systems are due to inadequate

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investment in ongoing training for involved personnel, including those

implementing and testing changes, as well as a lack of corporate policy

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protecting the integrity of the data in the ERP systems and how it is used.

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Limitations of ERP include:

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Success depends on the skill and experience of the workforce, including training

about how to make the system work correctly. Many companies cut costs by cutting

training budgets. Privately owned small enterprises are often undercapitalized,

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meaning their ERP system is often operated by personnel with inadequate

education in ERP in general, such as APICS foundations, and in the particular ERP

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vendor package being used.

? Personnel turnover; companies can employ new managers lacking

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education in the company's ERP system, proposing changes in business

practices that are out of synchronization with the best utilization of the

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company's selected ERP.

? Customization of the ERP software is limited. Some customization

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may involve changing of the ERP software structure which is usually
not allowed.

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? Re-engineering of business processes to fit the "industry standard" prescribed

by the ERP system may lead to a loss of competitive advantage.

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? ERP systems can be very expensive to install.

? ERP vendors can charge sums of money for annual license renewal that

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is unrelated to the size of the company using the ERP or its profitability.

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Technical support personnel often give replies to callers that are

inappropriate for the caller's corporate structure. Computer security

concerns arise, for example when telling a non-programmer how to change a

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database on the fly, at a company that requires an audit trail of changes so as

to meet some regulatory standards.

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ERPs are often seen as too rigid and too difficult to adapt to the specific

workflow and business process of some companies - this is cited as one of

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the main causes of their failure.

? Systems can be difficult to use.

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? The system can suffer from the "weakest link" problem - an inefficiency

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in one department or at one of the partners may affect other participants.

? Many of the integrated links need high accuracy in other applications to

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work effectively. A company can achieve minimum standards, then over
time "dirty data" will reduce the reliability of some applications.

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? Once a system is established, switching costs are very high for any one of the

partners (reducing flexibility and strategic control at the corporate level).

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? The blurring of company boundaries can cause problems in

accountability, lines of responsibility, and employee morale.

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? Resistance in sharing sensitive internal information between departments

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can reduce the effectiveness of the software.

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? There are frequent compatibility problems with the various legacy

systems of the partners.

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? The system may be over-engineered relative to the actual needs of

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the customer.

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ACTIVITY :

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1.Write short notes on ERP?

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2.What are the advantages and disadvantages of the implementation of ERP.

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Supply chain management (SCM)

Supply chain management (SCM) is the oversight of materials, information, and

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finances as they move in a process from supplier to manufacturer to wholesaler to

retailer to consumer. Supply chain management involves coordinating and

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integrating these flows both within and among companies. It is said that the

ultimate goal of any effective supply chain management system is to reduce

inventory (with the assumption that products are available when needed). As a

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solution for successful supply chain management, sophisticated software systems

with Web interfaces are competing with Web-based application service providers

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(ASP) who promise to provide part or all of the SCM service for companies who

rent their service.

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Supply chain management flows can be divided into three main flows:

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? The product flow

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? The information flow

? The finances flow

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The product flow includes the movement of goods from a supplier to a customer,

as well as any customer returns or service needs. The information flow involves

transmitting orders and updating the status of delivery. The financial flow consists

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of credit terms, payment schedules, and consignment and title ownership

arrangements.

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There are two main types of SCM software: planning applications and execution

applications. Planning applications use advanced algorithms to determine the best

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way to fill an order. Execution applications track the physical status of goods, the

management of materials, and financial information involving all parties.

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Some SCM applications are based on open data models that support the sharing

of data both inside and outside the enterprise (this is called the extended

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enterprise, and includes key suppliers, manufacturers, and end customers of a

specific company). This shared data may reside in diverse database systems, or

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data warehouses, at several different sites and companies.

A data warehouse is a central repository for all or significant parts of the data

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that an enterprise's various business systems collect. The term was coined by W.

H. Inmon. IBM sometimes uses the term "information warehouse."

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Typically, a data warehouse is housed on an enterprise mainframe server. Data from

various online transaction processing (OLTP) applications and other sources is

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selectively extracted and organized on the data warehouse database for use by

analytical applications and user queries. Data warehousing emphasizes the capture

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of data from diverse sources for useful analysis and access, but does not generally

start from the point-of-view of the end user or knowledge worker who may need

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access to specialized, sometimes local databases. The latter idea is known as the

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data mart.

Applications of data warehouses include data mining, Web mining, and decision

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support systems (DSS).

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By sharing this data "upstream" (with a company's suppliers) and "downstream"

(with a company's clients), SCM applications have the potential to improve the

time-to-market of products, reduce costs, and allow all parties in the supply chain

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to better manage current resources and plan for future needs.

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Increasing numbers of companies are turning to Web sites and Web-based

applications as part of the SCM solution. A number of major Web sites offer e-

procurement marketplaces where manufacturers can trade and even make auction

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bids with suppliers.

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E-procurement is the business-to-business purchase and sale of supplies and

services over the Internet. An important part of many B2B sites, e-procurement is

also sometimes referred to by other terms, such as supplier exchange. Typically,

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e-procurement Web sites allow qualified and registered users to look for buyers or

sellers of goods and services. Depending on the approach, buyers or sellers may

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specify prices or invite bids. Transactions can be initiated and completed. Ongoing

purchases may qualify customers for volume discounts or special offers.

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E-procurement software may make it possible to automate some buying and

selling. Companies participating expect to be able to control parts inventories more

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effectively, reduce purchasing agent overhead, and improve manufacturing cycles.

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E-procurement is expected to be integrated with the trend toward

computerized supply chain management

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ACTIVITY :

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1. Discuss in detail the meaning of supply chain management and

its significance in

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business.

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Supplier Relationship Management (SRM)

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Supplier relationship management is a comprehensive approach to managing an

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enterprise's interactions with the organizations that supply the goods and services it

uses. The goal of supplier relationship management (SRM) is to streamline and

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make more effective the processes between an enterprise and its suppliers just as

customer relationship management (CRM) is intended to streamline and make

more effective the processes between an enterprise and its customers.

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SRM includes both business practices and software and is part of the information

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flow component of supply chain management (SCM). SRM practices create a

common frame of reference to enable effective communication between an

enterprise and suppliers who may use quite different business practices and

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terminology. As a result, SRM increases the efficiency of processes associated

with acquiring goods and services, managing inventory, and processing materials.

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According to proponents, the use of SRM software can lead to lower production

costs and a higher quality, but lower priced end product. SRM products are

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available from a number of vendors, including 12 Technologies,

Manugistics, PeopleSoft, and SAP.

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The Essentials of Supplier Relationship Management

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In virtually every industry, the role of the supplier has radically expanded over the

past decade. Today there are cases where almost every aspect of product

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development and operations has been outsourced to a new breed of suppliers.

Suppliers have gone from simply being invited to the design team meetings to

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becoming the design team.

The role of the supplier has also been changed by the need for assured supply.

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Greater outsourcing, supply chain management and vendor-managed inventories

have all increased the risk that a critical component may not be available when it

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comes time to make an original equipment manufacturer's (OEM) shipment. When

this happens to a major product line at the end of a quarter, we often read about it in

the newspapers, as the supplier-short shipment is cited as the reason the company

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missed its quarter.

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The result is a fundamental power shift in the world of manufacturing. Suppliers are

no longer simply supplying, they are critical players in the success of the business.

For a growing list of features in OEM products, suppliers now own the intellectual

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capital that goes into creating the products. A few examples of this are computer

monitors, automotive braking systems and passenger seating. If a supplier fails to

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develop and deliver competitive features, the OEM product is no longer

competitive. If the supplier doesn't allocate adequate supply, OEMs can't ship and

take revenue for their products.

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The traditional systems that have been used for product development and

procurement don't work anymore. Meanwhile, the potential downside cost and risk

associated with managing supplier relationships has skyrocketed. These factors fuel

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the requirements for a fresh approach to managing relationships with suppliers.

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This trend toward more outsourcing and greater supplier value has also changed the

economics of today's corporation. More and more companies have purchase spend

exceeding 50 percent of their top-line revenue. There are also growing concerns

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over the increased risk associated with aggressive outsourcing. In the old days,

supply risk could be offset through split awards and effective management of

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second sources, but the trend toward suppliers designing, building and even directly

shipping complete subsystems has nearly eliminated the second source option. Any

time a supplier falls short on delivery or doesn't get a critical subsystem developed

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in time for a new product's launch, the top line suffers. This makes supplier

relationship management, or SRM, the best investment a company can make in

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design and procurement. It is the only system that can simultaneously reduce cost

and risk.

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The Challenge of Strategic Sourcing

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As the role of the supplier has expanded, a new business vocation has emerged:

strategic sourcing. The wizards of strategic sourcing are the commodity managers

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who must make a plethora of supply decisions every day -- as well as rethink all of

the supply decisions that have been made in the past -- and immediately act on

these new decisions. Unfortunately, the facts associated with strategic sourcing have

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historically been impossible to collect on a timely basis.

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The following is a list of essential pieces in the strategic sourcing pie and why

not aggregating and analyzing them can become costly:

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Spend Aggregation -- Where is spend going across the entire enterprise, what

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is being spent with each supplier and how much is being spent on each

commodity? Although these are often the most fundamental facts a company uses

for strategic sourcing, they're seldom easy to collect. Companies have multiple

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procurement systems (or instances of the same system), multiple supplier masters

and inconsistent commodity coding schemes. Spend aggregation facts are often the

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most powerful negotiating tool a buyer can have. Buyers can knock 15 percent off

the cost of purchases simply by understanding their true overall spend on a given

commodity and using that information to cut a better contract with a preferred

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supplier.

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Material Consolidation -- How many 3-inch blue widgets do we buy, and

do we need all of these varieties? What if we selected a preferred 3-inch blue

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widget and found a way to use it for all 3-inch blue widget requirements? The

challenge is to establish clean, rich content about what a company buys and then

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analyze functional equivalents to determine preferred varieties. Studies have shown

that duplicate parts cost at least $10,000 a year to maintain. One major computer

company successfully reduced the variety of parts it purchased from 540,000 to

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280,000 through this kind of material consolidation program, saving hundreds of

millions of dollars in the process.

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Demand and Forecast Deviation -- From a negotiation perspective, it's useful

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to understand where you've been spending your money in the past, but the real

key is to understand where you'll be spending your money in the future, because

it is never the same. The more variability exists in your business, the less likely

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it is that you will buy the same things from the same suppliers in the future.

When this happens, you invariably pay more for the volumes that increased and

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you fail to live up to your commitments for the volumes that

decrease, missing out on the lower unit prices you negotiated in the past.

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New Product Design Changes -- Product design teams regularly come up with

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something new that must be sourced before a new product can go into

production. That often means introducing a new supplier. If the sourcing team

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identifies these new requirements in time, they can identify potential sources,

negotiate contracts and secure volume materials. If they find out too late, the

new product can't ship and everyone scrambles to rush in high-priced materials

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design

out

the

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hard-to-source

parts.

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Contract Performance -- Every good-sized company has hundreds to

thousands of contracts in place with its suppliers. Occasionally, companies

actually buy according to their contracts. Most of the time they do not. Demand

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changes, engineering changes and supplier short shipments often result in

contracts failing to meet negotiated volumes. The actual transactions that are
booked against a contract must then be monitored and alerts must be established

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to flag significant anomalies. This becomes very difficult when companies have

thousands of contracts and dozens of procurement systems with inconsistent

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content, item and supplier masters. ",

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Supplier Performance -- Even when all of the right contracts are in place and

demand forecasts are accurate, suppliers can still fail to deliver, severely

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damaging your business. When it happens frequently, you have a bad supplier

and you need to demand improvement or move your business to a higher

performing supplier. The same is true for quality. You also need to identify the

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suppliers who are providing more than just on-time delivery and steer more

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business

their

way.

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Supplier Market Opportunities -- To understand alternate sourcing

opportunities in the outside market, you need to be able to quickly prepare a

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request for information (RFI) package and test the supply markets. It often

requires sophisticated what-if analysis to understand the total cost of

switching your spend from an existing (underperforming) supplier to a new

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source.

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The basic facts required to source strategically are diverse and often difficult to

collect in a large, multi-division enterprise. Because of this, they are seldom

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available and never current. Armed with fragmented and out-of-date information,

buyers must strive to negotiate the right contracts at the best terms possible and

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hope nothing goes wrong.

The Power of a Single View

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As SRM solutions were developed, it became clear that the workflows that create,

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execute and sustain optimal supplier relationships are integrally related to one

another. They cross the traditional boundaries of design, procurement and

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193

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manufacturing and extend out into the supplier's environment. They also cross the

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physical barriers of multiple divisions, plants, purchasing and design centers. In the

existing systems that managed all of the supplier information and transactions, there

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were a very large number of disparate systems that did not talk to one another.

There was also duplicate and inconsistent data across these systems. Getting a

complete view of a part, a supplier, or a bill of material for outsourced parts

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required sifting through fragmented data in a number of different types of legacy

systems.

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What is needed is a single view of all of the processes that face the supplier. This

single view must be able to cut across functional disciplines and cross physical

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barriers, as well. At the same time, any new solution has to leverage all of the

legacy systems that are already in place.

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But are SRM systems really worth investing in? Well, there are some significant

benefits. First, SRM provides the ability to strategically manage all aspects of the

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supplier relationship to reduce the cost and risk associated with the kind of

outsourcing practices seen today. SRM tools help companies create, execute and

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sustain their sourcing strategy.

The Supplier Must Win, Too!

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SRM solutions can also help create incentives for your suppliers. A number of

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OEM-centric initiatives designed to support extended outsourcing have failed for a

very simple reason -- there was no win for suppliers. Suppliers often operate on

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narrow margins and face fierce competition. They struggle to differentiate

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themselves and are unwilling to invest in something that commoditizes their

offerings, such as auctioning.

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Looking at SRM from the supplier perspective, there are three areas where SRM

could provide benefits:

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Forward Visibility -- When the forecast they've been building against is no

longer valid, suppliers are often the last to know. Typically, the lag time between

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the OEM knowing the real demand and the supplier being notified is 60 to 70 days.

During this lag time, two very bad things are happening. First, the supplier is

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building things the OEM doesn't need and probably won't take delivery on. The

cost of erroneous production will have to be eaten by someone. The other bad thing

that happens is that the supplier is probably not building what the OEM needs to

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capture demand for truly hot sellers. This will cost revenue and market share.

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Design Wins -- In the world of direct material, a supplier's sales success is often

determined by the OEM's design team -- long before a contract is negotiated. This

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happens when a supplier's parts, materials or subsystems get designed into a new

product. By guiding an OEM design team to use preferred parts from preferred

suppliers, SRM closes the loop with the suppliers who provide the most value.

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Content Syndication -- One of the lessons learned during the B2B exchange

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craze was that suppliers cannot publish custom catalogs for every customer or

exchange that they do business with. All but the very largest suppliers lack the
resources and technical know-how to pull it off. What suppliers need is the ability

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to publish once and syndicate their catalog across all of their trading parties. They

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195

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can still provide key customers with filtered catalogs and private pricing, but

the basic content is only published and maintained once.

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Four steps to SRM success

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Oracle believes that there are four critical factors to consider for a
successful implementation of an SRM solution.

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The first step is integration. An enterprise cannot offer SRM to its suppliers until it

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has automated and integrated its own internal processes. As SRM draws on

information generated throughout the enterprise, including, but not limited to,

product life cycle management, supply chain planning, enterprise resource

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planning and customer relationship management, this information should flow

from a single data source.

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Pella Corporation, a US manufacturer of windows and doors, wanted to lower its

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overall costs by adopting a central web-based approach to procurement and

improving the management of vendor terms and agreements. By integrating

Oracle Financials and Oracle Procurement, Pella streamlined its procure-to-pay

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processes and achieved significant time and cost savings, while gaining valuable

insight and business intelligence.

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Oracle Procurement enabled Pella's corporate purchasing division to cut transaction

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times for purchase orders from thirty minutes to five, a reduction of eighty-six percent.

Pella's manufacturing division has cut clerical costs and time per purchase order by

fifty percent. Tracey Buck, co-ordinator of facilities management for Pella said:

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'Oracle Procurement has helped reduce the number of calls from Pella's

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corporate purchasing department and from vendors by as much as ninety-five

percent.'

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Secondly, suppliers need to be connected to the enterprise. They should be able to

inquire, view and transact directly with the buyer's system. The method of

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connecting suppliers to the business must be affordable, scalable and relatively

straightforward to implement and use. The range of interface options available to

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suppliers - XML, EDI, web services, portals or email - means that their

investment in linking to the buyer's system can be kept to a minimum.

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Thirdly, once a single view of the supply chain has been enabled, analytical tools

can be added to help identify the areas of greatest opportunity for both the buying

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organisation and the supplier base, and to monitor performance. Business

intelligence tools assist decision-making and can help increase profitability for both

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parties.

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For example, if over fifty percent of a month's projected inventory of a particular item

is sold within the first week of the month, the supplier is automatically notified to

deliver additional stock, ensuring that the buying organisation has sufficient supply to

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meet customer demands, while simultaneously boosting its own revenue.

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Business intelligence tools can also be used to track supplier performance against

business objectives, other than just price. Monitoring performance is an important step

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in improving supplier relationships, however according to a study by Aberdeen Group,

only about half of enterprises have formal procedures in place to measure

performance. Aberdeen analyst, Mark Vigoroso, says that without measurement

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procedures in place, companies have no way of knowing if money and effort

spent on supply chain planning is doing any good.

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Finally, a culture of collaboration must be fostered across the supply chain, and

suppliers viewed as a source of competitive advantage, rather than cost. Gartner

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notes that properly managed supplier relationships 'can contribute to enterprise

innovation and growth', while a poorly managed supply base 'will drive up

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costs and slow new product initiatives'.

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An integrated, connected supply chain can help lower costs, as manufacturers and

suppliers are able set joint production, inventory and fulfilment schedules against

real-time market data.

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A modular approach can be taken to an SRM project, starting, for example, with a

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critical supplier-facing function such as procurement or sourcing. UK retailer

Littlewoods plc achieved 24 percent savings on its procurement of indirect goods

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in a successful pilot of Oracle Sourcing.

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Oracle Sourcing, a complete and integrated global sourcing application, allows a

company to optimise its supplier base, reduce sourcing costs, improve supplier

relationships, and source for best value. Littlewoods has now moved its purchasing

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function online permanently with Oracle Sourcing and expects to massively save

on its annual procurement spend.

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'Littlewoods Retail spends around ?320 million (US $462 million) a year on

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purchasing goods - a significant amount - that we believe can be reduced through

198

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the use of online auctions carried out through Oracle Sourcing,' said David

Hallet, chief information officer for Littlewoods Retail Ltd.

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In a highly competitive marketplace, companies are searching for further

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opportunities to reduce costs and improve operational efficiencies. According to

Gartner , supplier relationship management (SRM) represents an evolutionary

extension of supply chain management, driven by the need for enterprises to better

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understand their suppliers' long-term financial and operational contribution to the

top and bottom lines. It is the next step in managing the supply chain more

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effectively.

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Supplier relationship management then represents an opportunity to improve the

accuracy and speed of buyer-supplier transactions, while improving

collaborative working practices to the benefit of both parties, driving continuous

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improvement and lowering total cost of ownership.

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ACTIVITY:

1.What do you mean by Supplier Relationship Management ?

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2. Enumerate in detail the benefits of SRM ?

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3.What are the four critical factors to be considered for a successful

implementation of an SRM solution.

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___________________________________________________________________

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_____

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Partner relationship management (PRM)

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199

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Partner relationship management (PRM) is a business strategy for improving

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communication between companies and their channel partners. Web-based PRM

software applications enable companies to customize and streamline administrative

tasks by making shipping schedules and other real-time information available to all

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the partners over the Internet. Several CRM providers have incorporated PRM

features, such as Web-enabled spreadsheets shared through an extranet, in their

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software applications. PRM is often compared to customer relationship management

(CRM) and there is some argument over whether the complex relationships of

channel partnerships makes it necessary for PRM to be a separate entity, or merely a

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component of CRM.

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Channel refers to

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In information technology, the term channel is used in a number of ways.

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1) In telecommunications in general, a channel is a separate path through which
signals can flow.

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2) In the public switched telephone network (PSTN), a channel is one of multiple

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transmission paths within a single link between network points. For example, the

commonly used (in North America) T-carrier system line service provides 24 64

Kbps channels for digital data transmission.

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3) In radio and television, a channel is a separate incoming signal or program

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source that a user can select.

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4) In optical fiber transmission using dense wavelength-division multiplexing

(DWDM), a channel is a separate wavelength of light within a combined,

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multiplexed light stream.

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5) On the World Wide Web, a channel is a preselected Web site that can

automatically send updated information for immediate display or viewing on

request. See push technology.

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6) In computer and Internet marketing, a channel is a "middleman" between a

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product creator and the marketplace. Value-added resellers (VAR) and retail store

chains are examples of channels in this context.

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7) Using Internet Relay Chat, a channel is a specific chat group.

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8) In IBM mainframe systems, a channel is a high bandwidth connection between a

processor and other processors, workstations, printers, and storage devices within a

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relatively close proximity. It's also called a local connection as opposed to a remote

(or telecommunication) connection.

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9) In a field-effect transistor (FET), a channel is the semiconductor path on which

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current flows.

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Related terms include: clear channel, channel extender, Fibre Channel, Fibre

Channel over IP, channel associated signaling, and channel bank.

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A spreadsheet refers to a sheet of paper that shows accounting or other data in rows

and columns; a spreadsheet is also a computer application program that simulates a

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physical spreadsheet by capturing, displaying, and manipulating data arranged in

201

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rows and columns. The spreadsheet is one of the most popular uses of the personal

computer.

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In a spreadsheet, spaces that hold items of data are called cells. Each cell is labeled

according to its placement (for example, A1, A2, A3...) and may have an absolute or

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relative reference to the cells around it. A spreadsheet is generally designed to hold

numerical data and short text strings. Spreadsheets usually provide the ability to

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portray data relationships graphically. Spreadsheets generally do not offer the

ability to structure and label data items as fully as a database and usually do not

offer the ability to query the database. In general, a spreadsheet is a much simpler

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program than a database program.

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Daniel Bricklin and Bob Frankston created the first spreadsheet application, VisiCalc

(for "visible calculator"). Lotus 1-2-3 came next, followed by Microsoft Excel. While

Lotus 1-2-3 was the first to introduce cell names and macros, Microsoft Excel

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implemented a graphical user interface and the ability to point and click using a

mouse. There are many other spreadsheet applications on the market today; however,

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Lotus 1-2-3 and Microsoft Excel continue to be the most popular.

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Extranet

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An extranet is a private network that uses Internet technology and the public

telecommunication system to securely share part of a business's information or

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operations with suppliers, vendors, partners, customers, or other businesses. An

extranet can be viewed as part of a company's intranet that is extended to users

outside the company. It has also been described as a "state of mind" in which the

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202

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Internet is perceived as a way to do business with other companies as well as to sell

products to customers.

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An extranet requires security and privacy. These can include firewall server

management, the issuance and use of digital certificates or similar means of user

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authentication, encryption of messages, and the use of virtual private networks

(VPNs) that tunnel through the public network.

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Companies can use an extranet to:

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Exchange large volumes of data using Electronic Data Interchange (EDI)

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? Share product catalogs exclusively with wholesalers or those "in the trade"

? Collaborate with other companies on joint development efforts

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? Jointly develop and use training programs with other companies

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? Provide or access services provided by one company to a group of other

companies, such as an online banking application managed by one company

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on behalf of affiliated banks Share news of common interest exclusively

with partner companies

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What is CRM (customer relationship management)?

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CRM (customer relationship management) is an information industry term for

methodologies, software, and usually Internet capabilities that help an enterprise

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manage customer relationships in an organized way. For example, an enterprise might

build a database about its customers that described relationships in sufficient detail so

that management, salespeople, people providing service, and perhaps the customer

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directly could access information, match customer needs with product

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plans and offerings, remind customers of service requirements, know what other

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products a customer had purchased, and so forth.

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According to one industry view, CRM consists of:

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? Helping an enterprise to enable its marketing departments to identify and

target their best customers, manage marketing campaigns with clear goals

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and objectives, and generate quality leads for the sales team.

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? Assisting the organization to improve telesales, account, and sales

management by optimizing information shared by multiple employees, and

streamlining existing processes (for example, taking orders using mobile

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devices)

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? Allowing the formation of individualized relationships with customers, with

the aim of improving customer satisfaction and maximizing profits;

identifying the most profitable customers and providing them the highest

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level of service.

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? Providing employees with the information and processes necessary to know

their customers, understand their needs, and effectively build relationships

between the company, its customer base, and distribution partners

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Successfully Implementing a Partner Relationship Management (PRM)

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Solution

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204

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If indirect channels makeup a large portion of your overall sales strategy, meaning

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that you sell more than let`s say 30% of your goods and/or services through

resellers, dealers, distributors, or retailers; then investing in a Partner Relationship

Management (PRM) solution may make sense for your business. Most of us that

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have channel-related responsibilities know of, or have at least heard of, PRM. We

know the value that these software packages are intended to provide include:

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reduced program administration costs, automation, greater program intelligence,

tighter partner collaboration, accountability measurement, and channel investment-

return calculation, just to name a few of the benefits that most PRM solutions tout.

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However, if these tools are truly realizing the intended benefits, then why are many

manufacturers, vendors, and distributors abandoning their PRM systems?

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The answer is simple. Many PRM systems are being abandoned because they are

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not being used, neglected not by you the vendor, but by your partners. After all, if

the partners aren`t using the system, what`s the point? The common mistake that

most PRM solutions make is to focus 100% on providing the vendor with all the

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capabilities an organization could possibly want. This commonly results in a

cluttered Graphical User Interface (GUI) with features and functions that may

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seem impressive in a product demo during the tool selection process, but are less

impressive to your partners when they finally gain access to them and find the

system too difficult or time consuming to use. And herein lies the problem.

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Rich features and functions are the heart of any software solution, no doubt. But how

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these capabilities are presented to the user, how the user is expected to interact

with the system, and the value the system provides the users are most important in

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a PRM solution. Why is this so important? The majority of the users

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of the system exist outside of your enterprise. This means that you will have less

control of tool usage compliance. Certainly any PRM solution that you may

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consider should have some level of compliance measurement built-in, but this will

not completely solve your partner technology adoption issue if the following

haven`t been considered.

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Vendor Positioning and Rollout Strategy

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Partners` use of the PRM solution will initially rely on how effectively they are

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introduced to the technology. This means that the vendor strategy for

implementation is critical. Here are common mistakes that are made in the

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rollout phase:

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? Focusing on partner control features instead of partner value-add

? Not implementing the solution as a part of your business process

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? Overlooking the effort required for complete buy-in within your own organization
to support the solution

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? Rushing to rollout too many functions or programs without proper phasing.

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Implement more than (2) new partner programs at once often lead to disasters.

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? Lack of enforcement by other members of the Channel Team

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? Lack of appropriate upfront tool training

? Lack of ongoing support

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? Not designating a tool administrator or partner go-to person for tool questions

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Choosing the Right PRM Solution

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The ultimate users of your PRM solution are the partners. So why is it that most

PRM solution are chosen solely based on the capabilities that are provided to the

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vendor? Beyond satisfying your requirements as a vendor, the tool should also

satisfy your partners` requirements as well. The best way to achieve compliance

with your partner community is to select a solution that provides the partners with

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value. Tool capabilities should add value to the partner's business and better

enable them to sell your goods and services, not just monitor their success

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selling your goods and services. The following are typical partner requirements

and questions to consider when choosing a solution.

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? Ease of use

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?woH ?ohw yB ?deniart eb ot deen srentrap lliW

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W ?esu ot noitulos eht si evitiutni woH

hat is the learning curve?

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?erehwyna morf dna ,7x42 ,ylisae noitulos eht ssecca srentrap naC

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noitulos eht seod ro modnar ta atad wen rof hcraes ot deriuqer rentrap eht sI

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push or notify partners of new data?

riuqer si emit srentrap eht fo hcum woH

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ed to manage the

solution? ysae na yolpme metsys eht seoD

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-on, easy-off

philosophy ?yllacol atad eganam rentrap eht naC

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? Value add to the partner

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?ssenisub rieht worg srentrap ssenisub ym gnipleh noitulos eht si woH

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rentrap evig noitulos eht seoD

s greater access to my program information?

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?egatnavda evititepmoc a rentrap eht evig noitulos eht seoD

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?rentrap eht rof sessecorp ssenisub tnerruc evorpmi noitulos eht seoD

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? Integration

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ecalpsid ot rentrap eht ecrof dna evisurtni noitulos eht sI

other technologies that

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they are using?

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ydaerla yam srentrap taht snoitulos rehto htiw krow noitulos siht seod llew woH

have in place?

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? Flexibility

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llor ot evah I od ro margorp rentrap yb ro sesahp ni noitulos eht tnemelpmi I naC

out a broad solution with multiple partner programs at once?

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?deen yllaer I taht leef I snoitcnuf eht ylno (rof yap dna) tnemelpmi tsuj I naC

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,raey a sekat ti fi) shtnom 3 tuoba ni margorp wen a gnitnemelpmi etelpmoc I naC

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watch out!)?

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PRM Lifecycle

The rough potential scope of PRM looking at it as a subset of B2B Customer

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Relationship Management, and like CRM to do with relationship lifecycles, only in

this case partners not customers is given below.

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The five main buckets` of activity revolve around:

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? Partner Strategy ? selection and recruitment ? not just channels but also alliances.

This is becoming increasingly important for Telco companies trying to reach and

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develop 3G and Broadband markets, where their traditional skills and capabilities

require significant broadening. This has also applied for some time to IT hardware

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manufacturers, which through alliances with software companies and relevant

channels can make themselves relevant to specific market segments through these

associations.

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? Training, certification & informing ? getting partners up to speed and up to
standards that are in keeping with the brand promise.

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? Collaboration ? in advance of and throughout the whole sales cycle

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? Logistics and administrative support ? presales/post-sales

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? Performance Management ?the discipline of managing important relationships

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with strategically important partners ? both channel and alliance partners. Whilst

these aspects are not always truly sequential, they do give a view of the main

aspects of partner network interactions. This is why at the centre of the

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relationship lifecycle I have placed a sphere: - Partner Network Development. The

idea being that PRM should not be solely about automating or e-enabling current

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partner relationships,(indeed, I would argue that

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this view is a major danger sign), but should be very deliberate and focused attempt

to generate competitive advantage through the development of an effective and

relevant partner network ? alliances as well as channels.

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This networked` view is gaining currency at the moment due in part to the whole

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e-business phenomenon, enabling real-time collaboration for relatively little cost.

David Ford Professor of Marketing at Bath University and a member of the

Industrial Marketing and Purchasing Group (IMP) which has been studying

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networked relationships since 1976, states in his book Managing Business

Relationships` 1998, that marketing is the way that a company brings the benefits

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of its own and other companies` technologies to its customers and integrates them

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with their own`.

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Technologies`, here also includes processes and skills and is not limited to the

hard stuff`. He argues that companies no longer compete with other companies, but

now it is a case of networks competing with networks, and to confuse matters

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further, a firm can be a member of competing networks, which is pretty much

business as usual in the IT world. The difference however, is that rather than just

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creating a collection of ad hoc relationships, driven by sales quota assigned to

channel or partner managers, a firm should take a strategic view and figure out :

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? Which customers to serve?

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? How does their ecosystem function?

? What do they or might they need given their context?

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? How best to serve them ? now that we have dug behind to determine their

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wants/needs and behaviours and how those are being shaped?

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This brings into play the whole value creation and delivery network, and as markets

mature and organisations attempt to break out of the commoditised and low profit

environment that many find themselves in today, this networked view becomes of

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paramount importance as the major source of generating competitive advantage at

speed.

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Start with the strategy not the technology.

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In recent times it has almost become a machismo thing, that strategy is seen as a

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management exercise in hesitation and that execution is all that matters. This maybe

explains why so many firms have jumped to the conclusion e.g. implement software

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from a market leader, and figure out why and how to make it work later. A very

high incidence of failure follows as a result. What this means is that whilst we

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should not agonise over decisions and waste time, we can and should think things

through carefully so that what we implement has the desired effect in the market

place where it really counts. If you fail to do this bearing in mind that in PRM we

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are dealing with a networked business environment, where the individual nodes`

are independent businesses; then I can almost guarantee failure. Too often decisions

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on infrastructure systems are made by IT departments who have done their best to

interpret vague requirements given to them by senior management, who won`t

themselves spend time on thinking through what is really required. So my

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unequivocal first recommendation is to figure out where you want to be, and what

part PRM should play in support of your strategic objectives 2-3 years out. If you

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just focus on cost savings or efficiencies like improving procedures for allocating

market development funds, or administrative partner management processes, you

will miss the opportunity to develop competitive advantage and waste time on

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developing something that can be easily replicated by your competitors. The other

major risk is that none of your efforts will appeal to your partners as they may well

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perceive that you are trying to control costs at their expense. The degree of strategic

intent holds the key for generating value, not just for your firm but also your

partners.

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Focus your strategy

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Efficiency is great, effectiveness is even better. Any major program, (and PRM is

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potentially a fairly large one), needs some lodestone to govern its progress and

outcome. This is what good strategy should do. If your strategic intent is really

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focused on developing an effective partner network in order to crack open markets

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or generate profitable growth by moving from commodity to higher value add

transactions, then one of the first thorny issues you will come across, is that more

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than one department or part of the organisation owns` the go-to-market` strategy.

This is particularly true in large multinationals or global companies which are

organised along product not customer

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or market lines. This same issue is one of the main causes of CRM failure. From an

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outsiders point of view the obvious thing to do is to organise around customers or

markets. Experience shows that this requires too much political heat or a massive

crisis (of the sort faced by IBM at the start of the 90s) to gain traction. Therefore a

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pragmatic approach is required that balances the individual product line needs with

the customer or market segment solution` needs. If you look at the IT market, it

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soon becomes clear that much of the demand for products is derived and not direct.

A computer can be bought in its own right for its particular features ? a commodity

sale, or as a component linked to a number of other major elements ? infrastructure

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sale, or possibly as part of a business system ? solution sale. In each case the reason

for the purchase is different, and will impact buyer behaviour. The product line

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owners should be focused on the commodity and infrastructure sales where they can

increase the value of product shipped through cross selling and let the segment

managers (with full P&L accountability) coordinate them on the solution sale.

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Whether or not strategy is the responsibility of a single department or a cross

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departmental team, the value propositions and routes to market must have specific

customers or markets in mind. This is critical in order to work out:

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? Relevant ecosystem of value adding partners

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? Buyer behaviour

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? Routes-to-market

? Strategic partners

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In reality, many organisations already have established partners ? both alliance and

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distribution, some specific to a geographical region or country and others more

global, especially in the corporate market. Where this is the case, it makes sense to

segment your partners by strategic importance as defined by your strategic

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objectives and not necessarily historic revenue contribution. Some of these partners

are influencers and do not necessarily contribute any direct revenue, but they are

vital. In any case these will be the nucleus of partners that should now be the focus

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of your PRM program.

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Developing a win/win environment ? essential to PRM

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It`s a truism that unless there is something in it` for your partners, it doesn`t matter

how sexy or sophisticated the solution, you simply won`t be able to generate the

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change in behaviour that you are seeking. It is also very dangerous to treat all

partners the same and assume that what you are asking them to do will be so

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obviously good for them that they will snap your hand off to play ball. They won`t.

Anyone who has been involved with a CRM program affecting many internal

stakeholders from different parts of the organisation will know just how tough it can

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be to generate buy-in for change. Now magnify that by 100 and you will get some

idea of the real challenges confronting your organisation. A common refrain heard

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by partners is the organisation is too difficult to deal with`. Another is they don`t

understand how we work`. Both are recipes for losing

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competitive advantage, yet they can both be solved by taking the time up front to

work out what motivates partners or potential partners. Fundamentally they are in

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business to make money, so if they can do that more effectively with you then

without you, you have developed competitive advantage. A place to start is to

recognise two things about partners.

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? They have their own business model which may not always coincide with your

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own.

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? They may be changing their business model due to the same pressures you are

under.

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Understanding how these independent businesses generate profits provides insights

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into what is likely to motivate them. Better still find out from them by using

structured interview techniques to determine who does what best and what impact it

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will have on their business, and how do you compare and where are you deficient?

An approach developed is called a Competitive Advantage Audit`. The aim o f this

is to find out what sources of competitive advantage have been left on the table` by

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competitors and what value your partners can gain from your PRM program. As

you can see from the PRM lifecycle diagram there are many activities and areas that

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can be assessed, and also addressed by some of the more sophisticated PRM

systems. The output from this very focused piece of work can be used to build

partner consensus early on as well as give you insights into the returns you can

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expect from the PRM program. Part of the success of business networks can be

attributed to the culture that surrounds them. In the days when markets were

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expanding at breakneck speed, attention to value add within the network, did not

seem so important. When yearend figures looked less than rosy, the answer was

often to ask the channel to order more than was needed. This channel stuffing`

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approach no longer works. Especially as many markets have stalled. Product

lifecycles are too short, so when the music stops, no one wants to be holding the

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package, and with collaborative supply chains and improved logistics now common

place there is no longer any legitimate need to take much more product than is

really required by the end customer. Power has also shifted to the channel from the

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vendor or to the visible value add provider (perhaps an independent software or

content provider) from the vendor in the case of alliances. Standards have also

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predominated such that neither channel or alliance partners are locked in` to

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partnerships. This focus on mutual value add within the network is absolutely

crucial and needs to be embedded in the culture through effective internal

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communications and appropriate reward systems. These should be key supporting

elements of any PRM program.

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Build up the ROI picture early to avoid disappointment!

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One other critical factor, before attempting to implement any PRM solution is to

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determine potential returns on investment.

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This is where a small multi-disciplinary team can provide support in both

understanding the nature of the challenges to be faced and the financial

consequences of strategic choices that your firm will face. One of the great

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disappointments of CRM programs has been their apparent failure to demonstrate

any real return on investment. This is partly due to the lemming-like rush to

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implement software, but also to the lack of a disciplined

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approach to major projects. Ensure that ROI is anticipated and used to build the

supporting business case for any PRM application implementation or organisational

change. The outcome of the competitive advantage audit together with the ROI

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findings will help in assessing what must be done, and the importance of timing.

This leads to the PRM roadmap.

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A PRM program may involve many aspects of business across the entire partner

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relationship lifecycle. It is also certain that it will need to dovetail into existing

infrastructure that will be different for each company. By focusing on the high

impact aspects, some of which may be easy to implement and others more

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challenging, and driven by a solid business case, a sensible timeline and focus of

activities can be determined that can also be absorbed by the firm and its partners.

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Whilst every firm will say its employees are its most important asset, the reality is

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that most of them are rushing around and have little time to apply creative thinking

to solve business problems. One could understand the panic created by sharp

competitors seemingly doing everything right whilst we did everything wrong, the

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real winners out there in the PRM space will be the those who take a step back and

think, then act swiftly, rather than those who react or simply create heat. Hence

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? Think strategically ? however clever you think your competitors are there will

always be a source of competitive advantage they have missed, and their calm

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exterior belies the internal panic that surrounds them. To continue the animal

analogies, under the water they are paddling like crazy and are equally starved of

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customer or market insights.

? Work from the market backwards ? understand the ecosystems and potential for

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your company. Are you a Johnny-come-lately` and if so, is there really much 219

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potential there for you or would you be better exploring and focusing on

alternatives?

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? Act decisively with discipline ? the window is closing and there is only one

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chance to get it right.

? Take a hard-nosed approach on ROI. You will no doubt be competing with other

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internal projects that appear equally worthy.

? Get that competitive advantage audit going to root your decisions in the

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collaborative and mutually supportive culture that you will need to engender.

? Work with a few of your strategic partners to ensure that they are continually

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buying in to your vision and its execution. This will create the dynamic for success.

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ACTIVITY :

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1. Write short notes on PRM and its significance .

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2. What are the "partner requirements" and questions to be considered when

choosing a right PRM solution?

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3. Highlight the relation between ROI and PRM.

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4. Elaborate in detail the PRM lifecycle.

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Unit 4 Analytical CRM

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________________________________________________________________

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Objectives

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In this section, we will introduce you to the concepts of Analytical CRM, Customer
information databases, Ethics and legalities of data use, Data Warehousing and Data
mining, Market Basket Analysis (MBA), Click stream Analysis, Personalisation
and Collaborative Filtering.

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After you go through this unit, you should be able to understand :

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? the concept of Analytical CRM & it`s benefits.

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? the importance of managing and sharing customer data & best

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practices in managing customer data.

? Customer Information Database and it`s uses.

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? capturing customer information and the critical issues in building

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a customer database.

? ethics and legalities of data use.

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? ethical issues in web data mining.

? the concept of Data Warehousing.

? history of Data Warehousing & components of Data Warehousing.

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? advantages of and concerns in using Data Warehouse.
? the concept of Data Mining.

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? Data Mining Techniques & types of Data Mining.

? issues and challenges in Data Mining.

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? Data Mining application areas.

? the concept of Market Basket Analysis (MBA).

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? methodology, merits & limitations of Market Basket Analysis.
? applications of Market Basket Analysis.

? the concept of Click stream Analysis.

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? challenges of tracking with Click stream Data.

? specific dimensions for the Click stream.

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? integrating the Click stream Data Mart into the Enterprise

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Data Warehouse.

? Personalisation.

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? the concept of Collaborative filtering.

? history, methodology & types of Collaborative filtering.

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In this section, we have discussed the following :

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4.1. Analytical CRM

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4.1.1. Benefits of Analytical CRM

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4.2. Managing and sharing customer data

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4.2.1. Benefits of Customer data management

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4.2.2. Best practices in managing customer data

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4.3. Customer Information Database

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4.3.1. Use of customer database

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4.3.2. Capturing customer information

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4.3.3. Building a customer database - the critical issues

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4.4. Ethics and legalities of data use

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4.4.1. Ethical and Social Considerations of Customer Information

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Systems

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4.4.2. Ethical issues in web data mining

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4.5. Data Warehousing

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4.5.1. History of data warehousing

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4.5.2. Components of a data warehouse

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4.5.3. Advantages of using data warehouse

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4.5.4. Concerns in using data warehouse

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4.6. Data Mining

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4.6.1.Definitions

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4.6.2. KDD vs. Data Mining

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4.6.3. Data Mining Techniques

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4.6.4. Types of Data Mining

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4.6.5. Issues and challenges in Data Mining

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4.6.6. Data Mining application areas

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4.7. Market Basket Analysis (MBA)

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4.7.1. Methodology

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4.7.2. Merits

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4.7.3. Limitations

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4.7.4. Applications of MBA

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4.8. Click stream Analysis

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4.8.1. Challenges of Tracking with Clickstream Data

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4.8.2. Specific Dimensions for the Clickstream

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4.8.3. Integrating the Clickstream Data Mart into the Enterprise Data

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Warehouse

4.9. Personalisation

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4.10. Collaborative filtering

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4.10.1. History

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4.10.2. Methodology

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4.10.3. Types of Collaborative filtering

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4.1. Analytical CRM

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CRM is a new paradigm for gearing all activities of a firm to customer

needs to identify suitable marketing opportunities and to mine the profit potential of

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a customer over the long term. Analyzing customer relationships from a lifetime

perspective is critical for success for an organisation. The problem of developing

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customer base resides in the following :

- Widening the relationship with customers by acquiring new and profitable

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customers.

- Lengthening the relationship with customers by targeting existing resources and

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strengthening the foundation of those relationships.

- Deepening the relationship with customers by transforming minor customers into

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highly profitable ones. An additional step is increasing the share of sales revenue

(and hence the share of wallet), or recognizing cross-selling or up-selling

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opportunities with current customers and making the right offers.

Achieving these tasks involves extensively analyzing the customer data.

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This type of analysis is one of the major purposes of Analytical CRM. To widen

the customer relationships, the firm should consider the factors like :

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- the kind of customers to be acquired

- the kind of customers who will drive the growth in future and

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- the type of new customers, who are likely to be interested in the firm`s products.

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To lengthen the customer relationships, a firm needs to answer following questions:

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- Which customers in particular it want to keep?

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- Which customers will drive most of the profits?

- Which customers might switch to the competitors and why?

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- Which customers are dissatisfied with the services and products of the firm?

The changed market situation means that knowledge about the value of a customer

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or a customer segment is decisive for the company's success. Once the firm has this

knowledge, this can be used to allocate resources more efficiently to the most

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desirable customers and to re-engineer the unprofitable ones. Customer information

must be kept consistent throughout, and it must be available across all the touch

points where the company interacts with its customers. Decisions about how to

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develop a relationship with customers should be reflected in all interactions and

planning with customers.

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Analytical CRM is a consistent suite of analytical applications that help the

firm to measure, predict, and optimize customer relationships. To address these

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business issues, analytical CRM includes a sound analytical infrastructure that

allows to gather all the relevant information about customers and organise it

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consistently. Thus, a 360-degree view of customers can be achieved, which then

forms the basis for wide-ranging analytical methods that help to measure and build

truly interactive, mutually beneficial, and profitable relationships. Mastering the

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following is key for a successful analytical CRM solution:

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- Capturing all relevant customer information from different sources, channels, and

touch-points and then integrating it into a customer knowledge base with a 360?

view.

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- Applying a comprehensive set of analytical methods to measure and optimize

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customer relationships and answering all relevant business questions.

- Deploying analytical results to improve the CRM processes, interactions with

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customers, and business planning with customers.

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- Integrating customer value with shareholder value and strategic enterprise

management.

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4.1.1. Benefits of Analytical CRM

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Analytical CRM can make a considerable contribution toward providing the

answers to numerous questions and thereby support a whole range of business

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decisions. The analytical capabilities allow a firm to identify new trends in the

markets and then to channel the investments in these markets. They also help you

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gain further insights into customer needs and preferences by identifying patterns to :

- Acquire new profitable customers.

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- Improve the firm`s relationships with existing customers by addressing their

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individual needs.

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- Optimize cross-selling and up-selling opportunities.

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- Improve customer loyalty and reduce customers' propensity to churn.

Analytical CRM also enables to gear all the processes of a firm toward customer-

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centricity and thereby :

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- Aim the firm`s resources at high-value customers and build more profitable

customer relationships by:

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+ Targeting the investments in marketing, sales, and service.

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+ Directing firm`s attention and services more effectively toward such

customers.

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+ Forcing internal efficiencies and process improvements.

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+Automate and personalize customer interactions based on sound customer

knowledge.

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+ Integrate the firm`s overall strategies with its strategies in marketing, sales

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and service.

With Analytical CRM, a firm can increase profits by as much as 100% by retaining

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an additional 5% of their customers. By some estimates, it costs four to seven times

more to replace a customer than it does to keep one.

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Activity 4.1.

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Discuss the objectives and benefits of Analytical CRM.

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4.2. Managing and sharing customer data

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Every manager would agree that more and better customer knowledge can

bring economic benefits to a company. Some companies are doing impressive

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things with customer data. A few even manage to turn some of it into knowledge.

But many companies are finding it difficult to manage the customer data. One

difficulty is that customer knowledge is widely dispersed around a company. Each

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business function in an organisation usually has its own interests regarding

customer information, its own way of recording what it learns and perhaps even its

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own customer information system. The disparate interests of departments make it

difficult to pull together customer knowledge in one common format and place.

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Customer information and knowledge also inspire a high level of politics

and passion. The salesperson with valuable customer information on index cards,

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the service department with valuable information on what customers thinks about

new products, the marketing department with highly detailed customer attitudes and

behavior from focus groups and surveys - all have some reason to keep control of

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what they know about customers. Senior general managers, however, generally

prefer to make customer knowledge an organizational resource and therein lies the

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conflict. Another factor making the management of customer knowledge difficult is

the fact that there are several different types, each of which must be managed with a

different approach. The first type is data-derived customer knowledge that

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originates in transaction systems. We typically think of this type of knowledge as

involving consumers, but it can also be about business customers.

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Managing this stuff involves several S's:

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Strategy : Defining what information is really important and what customer

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behavior really counts.

Standards : Ensuring that "customer" and other related terms mean the same

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thing throughout the organization.

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Systems : Allotting sufficient processing power to process all the data.

Statistics : Turning data into knowledge through statistical processing.

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Smart people : Finding smart people to structure and interpret the analysis of

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customer data.

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Five Ss of managing customer data

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Strategy
Standards

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Systems
Smart people
Statistics

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Another type of customer knowledge is tacit--unstructured, difficult-to-

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express knowledge that we observe or sense about our customers. The voice of the

market never speaks clearly, and we often have to intuit messages from customers at

the sub-rational level. Every good salesperson tries to elicit some tacit knowledge

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from a customer in the form of body language, facial expressions or other "vibes."

Some market research experts now argue that customer opinions about products and

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marketing messages can best be understood in tacit forms of expression. Tacit

customer knowledge can be just as important to sales and marketing functions as the

other types of customer knowledge. The good aspect about tacit knowledge is that

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much of it can be converted through various means to explicit human knowledge

and thus made more permanent and transferable. The bad thing is that

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doing so is difficult. It requires continual observation, careful analysis of customer

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behavior and a patient disposition. When managed well and applied to various

customer-facing business processes, customer knowledge can increase customer

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purchase and retention levels, save money by directing marketing efforts at

customers who will respond to them, and yield products and services that customers

really want in the first place.

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4.2.1. Benefits of Customer data management

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Customer data is critical to every business. Accurate customer information

enables the firm`s sales, service and marketing teams to target specific customers

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through an in-depth understanding of customers. A thorough and consistent analysis

of customer touch points is critical.

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For example consider a retail business. Retailers capture customer data

through an ever-widening array of tools. Customer data is difficult for a retailer to

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manage due to the sheer volume of customers with constantly evolving personal

and transactional information. Data therefore needs to be continually managed for it

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to remain of quality and use to the business.

Effective data management provides a number of business benefits :

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- increased sales through better knowledge of customer needs

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- improved efficiency of business processes by eliminating duplication and wasted

data collection

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- increased compliance and data security through standardisation and centralisation
of data.

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Other benefits are :

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Generating customer insight

Segmenting customers

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Building innovation

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Building effective communications &

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Creating loyalty

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i. Generating customer insight

Customer insight is an understanding of consumer behaviour that has the

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potential to drive mutual benefit. It is the bedrock of any customer-facing

organisation and drives long-term growth in shareholder value. Most of the value

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that shareholders assign to companies is based on expectations of returns beyond

the period for which forecasts exist. A business`s pipeline of future cash is driven

by improving returns on equity, sustaining growth, reducing uncertainty,

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accelerating future cash and extending time horizons. Customer insight enables

superior business performance against these criteria by creating the basis for

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compelling differentiation, relentless innovation, the development of strong brands

and relationships, faster market penetration and development of the best portfolio of

product options.

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Most retailers acknowledge that information about consumers is critical to

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success, but their ways of working are often internally focused, and don`t focus on

the need for real insight as the primary means of generating demand long term. This

lack of recognition of the importance of generating real consumer insight often

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stems from current business success, or from a focus on local markets disguising

the need for consumer insight. However, retailers need to address this. A failure to

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generate and make use of consumer insight in day-to-day operations will lead to

lower shareholder value.

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ii. Segmenting customers

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Customer segmentation is a basic marketing technique and is at the heart of

retailers` marketing strategy and is essential to the way that successful retailers run

their business. It is used to drive the profitability of the business by understanding

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the needs and wants of customers more effectively, and delivering benefit to the

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customer against each of those needs and wants. Each customer has different needs

and is therefore potentially a separate market. One-to-one marketing is a great idea

but it may not be economical to market directly to each customer. Some customers

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will be more profitable than others and some may not want a relationship at all.

Market segmentation divides large, heterogeneous customer groups into smaller,

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more manageable segments that can be targeted more efficiently. After

segmentation, each of the segments can be evaluated and attractive segments

targeted. A customer value proposition for the segment can then be developed.

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Retailers should also be aware that customers, who may look alike, don`t

necessarily act alike, and therefore it is critical to consider segmentation by

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customer needs and attitudes as well as by customer characteristic.

iii. Building innovation

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Innovation is critical to retailers in today`s highly competitive market.

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Retailers need to use innovation to move a step ahead of competitors, not just in

customer-facing activities, but in all areas of the business. Innovation means many

different things to different people, though one thing all successful, consistently

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innovative businesses have in common is a clear innovations strategy aligned with

business objectives. Key innovation enablers, which together make up the

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successful innovations strategy are :

Receptive culture : Leadership needs to make innovation a strategic priority

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and encourage the gathering and sharing of ideas and market data from all areas

inside and outside the organisation. The quest for innovation needs to be sponsored

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and recognised from the top.

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Ideas management : New ideas must be validated, quantified and assessed for

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risk before deciding whether to develop. Ideas must be prioritised and the full

business impact assessed. New ideas are one thing, successful innovation is another.

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Efficient processes : Processes must provide a clear implementation approach

for the initiative and be continuously reviewed to deliver strategy and measure

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results.

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Momentum : Momentum and energy are needed in order to speedily convert

an idea into a value-add application that keeps the organisation ahead of the

competition. Devolved decision-making and step-by-step implementation creates

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momentum and dispels uncertainty and anxiety.

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Effective communications : Effective communication channels ensure that

roles and responsibilities are clearly defined, enabling multi-functional teams to

leverage expertise and cross-fertilise ideas.

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iv. Building effective communications

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A retailer`s wide range of produce, typically targeted towards a wide range

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of audiences, makes effective marketing communications both extremely

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complicated and vital for success. The retail environment is continually adapting to

changing customer demands, market variables and competitor activities. As a result

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product and service offerings, and pricing and promotional strategies, must be

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constantly adapted. However, these changes must be effectively communicated,

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both internally and externally, for them to be successfully implemented and

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accepted by customers.

v. Creating loyalty

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Retailing is all about serving customers - but the very convenience of

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shopping in physical stores can mean that customers come and go, while the retailer

has limited knowledge of the relationship with them. In the current competitive 231

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climate, retailers need to develop a long-term relationship with their customers, and

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create a satisfying shopping experience that keeps them coming back. New retail

channels and technologies can offer cost-effective means to track and enhance

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customer relationships, both emotional and financial.

Any business can reap all these benefits only through efficient and effective

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management of customer data.

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Activity 4.2.

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Discuss the benefits of customer data management.

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4.2.2. Best practices in managing customer data

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Effective customer data management doesn't require a massive master data

management platform. Customer Data Management (CDM) is a subset of Master

Data Management (MDM) that refers to the practice of synchronizing and

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standardizing customer data. Effective CDM is not just about having integrated,

clean customer data, it's about leveraging data to increase revenue and profitability.

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Following are the best practices that will help to achieve a return on investment

(ROI) from customer data management (CDM) :

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i. Automate CDM : The biggest challenge with CDM is extracting and normalizing

customer data from multiple sources. To solve this problem, firms can automate the

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entire customer data management system.

ii. Increase organizational visibility and role-based access : CDM should give

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employees greater visibility to customers, channels, distributors and stakeholders.

Role-based access to customer data enables functionally appropriate views into

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customer data and is an important way to optimize customer interactions and

operational decision making.

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iii. Centralize CDM by location or division : Centralizing CDM by location or

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Division will help the firm to test processes, fix problems and develop best

practices.

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iv. Develop data stewardship programs : Cross-functional data stewardship and

establishing ultimate accountability for customer data is as important as technology

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for CDM. Clearly defined roles and responsibilities and internal cross-functional

teams are the critical factors for the success of CDM.

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v. Organizational and executive support : Getting organizational and executive

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support is important for CDM. For CDM to be successful, consider it`s impact on

various departments, prioritize accordingly, and tie CDM to overall corporate goals

and strategies.

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4.3. Customer Information Database

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A customer database is an organised collection of comprehensive

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information about individual customers or prospects that is current, accessible, and

actionable for such marketing purposes as lead generation, lead qualification, sale of

a product or service, or maintenance of customer relationships. Database marketing

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- the predecessor of CRM - is the process of building, maintaining, and using a

customer database and other databases (product, suppliers, resellers) for the purpose

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of contacting, transacting, and building relationships. Companies collect customer

information through customer transactions, registration information, telephone

queries, cookie information, and information from every contact with a customer at

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different touch-points. A customer database includes information about a

customer`s past purchases, demographics (age, income, family members, birthdays),

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psychographics (activities, interests, and opinions), mediagraphics (preferred

media), and other useful information.

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The customer database is the central repository of all of the information

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pertaining to the relationship of a business and its customers. Since database

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architecture is not very efficient for analytical applications, CRM uses a data

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warehouse for storing customer information. Through data mining, marketing

statisticians can extract useful information about individuals, trends, and segments

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from the mass of data. The database stores all information about the customer, such

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as:

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Individual-related information :

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Name

Addresses

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Age

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Income

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Spouse

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Children

Home ownership

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Pets

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Hobbies

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Sports interests

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Company-related information :

Name

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Addresses

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Number of employees

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Revenue

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Standard industry codes (SICs, that define business types)

Individual buying behaviour

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Site buying behaviour.

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The database keeps track of all contacts by/with the customer, including:

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Customer-initiated contacts

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Purchase transactions

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Calls

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Comments

Returns

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Service calls

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Complaints

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Company-initiated contacts

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Promotional offers

Letters

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Calls

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Personal visits

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The following information can be derived from the data stored in the database:

Recent purchase : When has the customer last purchased something from the

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company - a measure of retention.

Frequency : The number of purchases the customer has made from the company

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within a specified time frame.

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Monetary Value : The amount the customer has spent on purchases from the

company, again within a specified time frame.

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Demographic and lifestyle append : Information about the customer other than

purchase transactions, including the customer`s age, income, number and ages of

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children, interests, and hobbies. CRM uses this information to gain a better

understanding of what a customer will value about a relationship with the company,

which core products or services or benefits will have the most value, and why these

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benefits are important to the individual.

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Modeling variables : The weight of the stored variables in predicting the customer`s

profitability.

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4.3.1. Use of customer database

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The behavioural data included in the customer database is used for the following
promotional purposes:

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Customer acquisition (identifying prospects) : One of the ways companies can

generate sales leads is by advertising their products or services through

advertisements that include a response feature, such as a business reply card or a

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toll-free phone number. The database is built from these responses. The database

can be sorted to identify the best prospects who can then be contacted by e-mail,

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phone, or personal calls in an attempt to convert them into customers.

Customer retention (deepening customer loyalty) : The data is used to identify

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individuals at risk of attrition (also called churn prediction) so that they can be

targeted with special promotional activities. Companies can create interest and

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enthusiasm in customers by making offers that match their preferences, by sending

appropriate gifts, discount coupons, and interesting promotional materials.

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Increasing share of wallet by identifying which customers should receive a

particular offer : Data is used to help companies up-sell and cross-sell their

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products and services to specific customers for added profit. Companies set up

criteria describing the ideal target customer for a particular offer. The database is

scanned for those who most closely resemble the ideal type. Targeting precision can

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be improved over time by observing response rates. An automatic sequence of

activities can be set up to follow a sale, for example a thank you note` to be

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followed by a new offer after some time.

Reactivating customers by making attractive timely offers : Companies can install

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automatic mailing programmes (automatic marketing) that send out birthday or

anniversary cards, festival shopping reminders, or off-season promotions.

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Avoiding mistakes while interacting with customers : Different staff members of the

company might interact with the same customer separately and provide inconsistent

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or contradictory information. Staff might fail to recognise a premium customer or

somebody related to a premium customer and treat them as ordinary customers,

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leading to the risk of attrition. Such mistakes can be avoided if the people

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interacting with the customer access the updated customer profile.

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4.3.2. Capturing customer information

Capturing customer information is the foundation of Customer Relationship

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Management (CRM) and can spell success or failure for any CRM programme.

Data capture can either improve customer relationships or destroy them.

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Transaction processing systems also collect data but they only provide a mechanical

description of the transaction, which in reality is a much richer event--at least from

the marketing point of view. For example, a customer order entered in a transaction

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processing system describes what was ordered and when, and what was the price.

But it tells nothing about why and how the customer ordered the product. It contains

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no information that can be used for up-selling and cross-selling products to this

customer. It is not practical to capture all the details of every transaction; and most

customers won`t like the intrusion into their lives that such data collection entails.

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The idea is to capture the most useful information and maximise its value.

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Most businesses have to deliver their products through intermediaries. This

complicates their relationship with customers. Examples of intermediaries include

doctors for pharmaceutical companies, agents for insurance companies, wholesalers

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and retailers for fast-moving consumer goods (FMCG) companies. In such

businesses the data collected is not only about customers but also about important

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intermediaries.

4.3.3. Building a customer database - the critical issues

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Ensuring employee acceptance and implementation : Company representatives

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must be fully aware of data protection issues, such as how customer information

will be used. CRM literature should include customer rights and how information

will be used.

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Explaining data capture to the customer : A CRM programme must be

communicated properly and not as an intrusive data capture effort. It is important

and desirable to be honest and informative with your customers and also with your

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company representatives about how customer information will be used. In many

countries it is the law. Explaining how the information will serve the customer and

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convincing customers about the programme`s benefits for them is critical to the

success of any CRM programme.

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Reiterating programme objectives and benefits and thanking the customer at each

communication : Data capture is just the start. Each subsequent communication to

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the customer should reiterate programme objectives, reinforce benefits, and thank

the customer.

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Activity 4. 3.

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Prepare a report on the role of customer data base in a retailing firm.

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4.4. Ethics and legalities of data use

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Business ethics is a form of applied ethics that examines ethical rules and

principles within a commercial context, the various moral or ethical problems that

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can arise in a business setting, and any special duties or obligations that apply to

persons who are engaged in Business. Companies can maintain consumers' trust,

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and their business, by safeguarding personal data.

Customer privacy measures are those taken by commercial organizations to ensure

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that confidential customer data is not stolen or abused. Since most such

organizations have a strong competitive incentive to retain an exclusive access to

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this data, and since customer trust is usually a high priority, most companies take

some security engineering measures to protect customer privacy.

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However, these vary in effectiveness, and would not typically meet the

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much higher standards of client confidentiality applied by ethical codes or legal

codes. Since they operate for-profit, commercial organizations also cannot spend an

unlimited amount on precautions and remain competitive - a commercial context

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tends to limit privacy measures, and to motivate organizations to share data when

working in partnership. This has led to many moral hazards and outrageous

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customer privacy violation incidents, and has led to consumer privacy laws in most

countries, especially in the European Union, Australia, New Zealand and Canada.

Some services, notably telecommunications including Internet, imply collecting a

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vast array of information about user's activities in the course of things, and may also

require consultation of this data to prepare bills. Telecom data must be kept for

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seven years in the US and Canada, to permit dispute and consultation about phone

charges. Telecom regulation has always enforced a high level of confidentiality on

these very sensitive customer communication bills and the underlying records.

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However, this approach has to a degree been outmoded as other industries also now

gather sensitive data.

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Such common commercial measures as software-based customer relationship

management, rewards programs and target marketing tend to drastically increase the

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amount of information gathered (and sometimes shared). These very drastically

increase privacy risks, and have accelerated the shift to regulation, rather than

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relying on corporate desire to preserve goodwill.

Consumer privacy laws and regulations seek to protect any individual from

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loss of privacy due to failures or limitations of corporate customer privacy

measures. They recognize that the damage done by privacy loss is typically not

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measurable, nor can it be undone, and that commercial organizations have little or

no interest in taking unprofitable measures to drastically increase privacy of

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customers - indeed, their motivation is very often quite the opposite, to share data

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for commercial advantage, and to fail to officially recognize it as sensitive, so as to

avoid legal liability for lapses of security that may occur.

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Consumer privacy concerns date back to the first commercial couriers and

bankers, who in every culture took strong measures to protect customer privacy, but

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also in every culture tended to be subject to very harsh punitive measures for

failures to keep a customer's information private.

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Today the ethical codes of most professions very clearly specify privacy measures.

Modern consumer privacy law in a recognizable form originated in telecom

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regulation. The data gathering required for billing began to become an obvious

privacy risk as well. Accordingly, strong rules on operator behavior, customer

confidentiality, records keeping and destruction were enforced on telecom sector in

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every country. Through the 1970s many other organizations in developed nations

began to acquire sensitive data, but there were few or no regulations in place to

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prevent them from sharing or abusing it. Customer trust and goodwill was generally

thought to be sufficient in some nations, notably the United States, to ensure

protection of truly sensitive data. But in the 1980s much smaller organizations

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began to get access to computer hardware and software, and these simply did not

have the procedures or personnel or expertise, nor less the time, to take rigorous

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measures to protect their customers. Meanwhile, via target marketing and rewards

programs, they were acquiring ever more data.

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Gradually, customer privacy measures alone proved insufficient to deal with

the many hazards of corporate data sharing, corporate mergers, employee turnover,

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theft of hard drives or other data-carrying hardware from work. Talk began to turn

to explicit regulation, especially in the European Union, where each nation had laws

that were incompatible, e.g. some restricted the collection, some the compilation,

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and some the dissemination of data, and it was possible to violate anyone's privacy

within the EU simply by doing these things from different places in the European

Common Market as it existed before 1992. Through the 1990s the proliferation of

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mobile telecom, the introduction of customer relationship management and the use

of the Internet by the public in all developed nations, brought the situation to a

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head, and most countries had to implement strong consumer privacy laws, usually

over the objections of business. In US, there is no national law for data protection.

However, there are industry specific regulations. The HIPAA (Health Insurance

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Portability and Accountability Act) privacy rule for the Healthcare Industry and the

Gramm-Leach-Bliley (GLB) acts for the Financial Services sector are two good

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examples. Citizens can legally waive their rights to personal privacy.

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Privacy legislations across the globe :

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- Canada: Personal Information Protection and Electronic document

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act, April 13, 2000.

- USA: Health Insurance Portability and Accountability Act (HIPAA)

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1996, Children`s Online Privacy Protection Act 1998, Gramm-
Leach-Bliley Act 1999.

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- Europe: Data Protection Directive 1995,

Telecommunications Directive 1997.

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- Australia: The privacy amendment act, 2000.

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- Japan: Guidelines concerning the protection of personal

information associated with electronic computer data processing in
the private sector, 1989.

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4.4.1. Ethical and Social Considerations of Customer Information Systems

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Key ethical issues in the information age, including the increased ubiquity

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of computerised databases, are often popularly summarised under the four headings

privacy, accuracy, property, access (labelled with the acronym P-A-P-A).

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- Privacy : the ability of people to keep personal information about themselves

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private and confidential; how the widespread holding of personal information about

people impacts on interpersonal relations of trust, autonomy, and dignity;

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- Accuracy : the quality and accuracy of data/information held in databases, and on

which organizations act, assuming the data/information to be correct;

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- Property : information ownership and control--who owns personal information

about an individual, and who has the right to use it, or control its use; and

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- Accessibility : access of members of society to the social store of information.

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The participation of citizens in the ordinary processes of daily life such as shopping,

banking, travel, healthcare, and education all result in a data trail about the

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activities, preferences, and even thoughts of individuals - data collection is

embedded in organisational and social processes. Since it is increasingly essential

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for citizens to use the information technologies to bank, shop, or work, people tend

to resign themselves to the loss of privacy. The increasing use of the Internet and

electronic commerce brings the collection of personal data into sharp focus, posing

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particular challenges for privacy and security of personal information. Mere entry

of a user to an Internet site triggers the accumulation or use of a user`s demographic

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and psychographic data.

Controversially, some organisations have been involved in using their

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customer databases simply as assets to be exploited by selling the data to other

firms, including marketers. In considering ethical aspects of customer information

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systems, the P-A-P-A model presents a useful tool for surfacing a range of relevant

issues, but it seems inadequate in getting to the core social and political issues.

Whilst the model surfaces issues of privacy, accuracy, property rights, and

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accessibility, the deeper social and political concerns of access, equity, alienation

and exclusion remain obscured. The philosophy of user fees and charges, in an

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environment where access to information is increasingly reserved for those who

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have the capacity to pay extends well beyond access to and charges for information.

The key access issue in relation to customer information systems does not revolve

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around who has access to the information

held in databases (as suggested by the P-A-P-A model), but how the use of that

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information by powerful corporate players affects the access of people-especially

the poor and disadvantaged - to basic goods and services.

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Information systems ethics require a central understanding of how

information technologies affect human choice, human action, and human potential.

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Social integration is an important part of business ethics, and therefore of business

responsibility, making it vital that information systems professional recognise that

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the creation of customer information systems is not a technical issue alone. The

ethical implications of customer information systems cannot be considered in a

simplistic way. The complexity of interrelations between customer information

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systems, customer accounting, and the marketing function of organisations, and the

ultimate uses of customer databases need to be considered.

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4.4.2. Ethical issues in web data mining

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The World Wide Web can be seen as the largest database in the world. This

huge, and ever-growing amount of data is a fertile area for data mining research. The

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important ethical issue with data mining is that, if someone is not aware that the

information/ knowledge is being collected or of how it will be used, he/she has no

opportunity to consent or withhold consent for its collection and use. This invisible

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information gathering is common on the Web. Knowledge discovered whilst mining the

web could pose a threat to people, when, for instance, personal data is misused, or is

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used for a purpose other than the one for which it is supplied (secondary use). This

same knowledge, however, can bring lots of advantages. Knowledge

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discovered through data mining is important for all sorts of applications involving

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planning and control. There are some specific benefits of web-data mining like

improving the intelligence of search engines. Web-data mining can also be used for

marketing intelligence by analysing a web user`s on-line behaviour, and turning this

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information into marketing knowledge. It should be noted that ethical issues can

arise from mining web data that do not involve personal data at all, such as

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technical data on cars, or data on different kinds of animals. In this section, we shall

point out that web-data mining, which involves the use of personal data of some

kind, can lead to the disruption of some important normative values. One of the

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most obvious ethical objections lies in the possible violation of peoples`

(informational) privacy. Protecting the privacy of users of the Internet is an

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important issue.

Informational privacy mainly concerns the control of information about

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oneself. It refers to the ability of the individual to protect information about himself.

The privacy can be violated when information concerning an individual is obtained,

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used, or disseminated, especially if this occurs without their knowledge or consent.

Privacy issues due to web mining often fall within this category of informational

privacy. When information is discovered through web data mining, someone`s

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privacy might be directly violated in the process. When the information is classified

and clustered into profiles, and then used for decision-making, people could feel

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violated in their privacy.

Possible arguments against the danger of web-data mining

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i Web-data mining itself does not give rise to new ethical issues.

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ii There are laws to protect private information, and on-line privacy statements

guarantee privacy.

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iii. As people can refuse to give out information about themselves, they do have

some power to control their relationship with private and public organisations.

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Many individuals simply choose to give up their privacy.

iv. The data collected is not of a personal nature, and most web-data mining

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applications result in anonymous profiles.

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v. Data mining techniques will provide more accurate and more detailed

information, which can lead to better and fairer judgements. So, web-data mining

leads to less unwanted marketing approaches.

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vi Personalisation leads to individualisation instead of de-individualisation. Most

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customers like to be recognised, and treated as a special customer. So it is not

considered a violation of privacy to analyse usage interaction.

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Possible solutions

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There are means to solve some problems with respect to privacy in the

ethical context of web-data mining. Solutions can be at an individual level and at a

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collective level. Solutions at an individual level, include actions an individual can

take in order to protect himself/herself against possible harms. For example, using

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privacy enhancing technologies, being cautious when providing (personal)

information on-line, checking privacy policies on web sites etc are the solutions.

The solutions at a collective level refer to things that could be done by society

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(government, businesses, or other organisations) to prevent web-data mining from

causing any harm. For example, further development of privacy enhancing

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technologies, publishing privacy policies, monitoring web mining activities, legal

measures, creating awareness amongst web users and web data miners etc are the

possible solutions at a collective level. A mixture of technical and non-technical

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solutions at both the individual and the collective level is probably required to solve

some of the problems.

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Activity 4. 4.

Discuss the ethical issues in web data mining.

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4.5. Data Warehousing

A Data warehouse is an application with a computer database that collects,

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integrates and stores an organization's data with the aim of producing accurate and

timely management of information and support for analysis techniques, such as data

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mining. It is a repository of an organization's data, where the informational assets of

the organization are stored and managed, to support various activities such as

reporting, analysis, decision-making, as well as other activities such as support for

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optimization of organizational operational processes. An enterprise data warehouse

is the sole historical register of virtually all transactions and important operational

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events that occur in the life of an organization. This data is ultimately stored and

cataloged for immediate and future utilization in various forms, such as deployment

into some application. It is through these various uses and deployments that this

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data becomes information, to be potentially exploited for benefit.

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Bill Inmon's formal systems definition of a data warehouse is a computer

database and its supporting components that is:

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subject-oriented, meaning that the data in the database is organised so that

all the data elements relating to the same real-world event or object are linked

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together;

Time-variant, meaning that the changes to the data in the database are

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tracked and recorded so that reports can be produced showing changes over time;

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Non-volatile, meaning that data in the database is never over-written or

deleted, but retained for future reporting; and,

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Integrated, meaning that the database contains data from most or all of an

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organisation's operational applications, and that this data is made consistent.

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4.5.1. History of data warehousing

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Data Warehouses became a distinct type of computer database during the

late 1980's and early 1990's. They developed to meet a growing demand for

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management information and analysis that could not be met by operational systems.

Operational systems were unable to meet this need for a range of reasons :

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- The processing load of reporting reduced the response time of the

operational systems,

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- The database designs of operational systems were not optimised for

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information analysis and reporting,

- Most organizations had more than one operational system, so company-

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wide reporting could not be supported from a single system,

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and

- Development of reports in operational systems often required writing

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specific computer programs which was slow and expensive.

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As a result, separate computer databases began to be built that were

specifically designed to support management information and analysis purposes.

These data warehouses were able to bring in data from a range of different data

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sources, such as mainframe computers, minicomputers, as well as personal

computers and office automation software such as spreadsheet, and integrate this

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information in a single place. This capability, coupled with user-friendly reporting

tools and freedom from operational impacts, has led to a growth of this type of

computer system. As technology improved (lower cost for more performance) and

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user requirements increased (faster data load cycle times and more features), data

warehouses have evolved through several fundamental stages :

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- Offline Operational Databases : Data warehouses in this initial stage are

developed by simply copying the database of an operational system to an off-line

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server where the processing load of reporting does not impact on the operational

system's performance.

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- Offline Data Warehouse : Data warehouses in this stage of evolution are updated

on a regular time cycle (usually daily, weekly or monthly) from the operational

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systems and the data is stored in an integrated reporting-oriented data structure

- Real Time Data Warehouse : Data warehouses at this stage are updated on a

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transaction or event basis, every time an operational system performs a transaction

(e.g. an order or a delivery or a booking etc.)

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- Integrated Data Warehouse : Data warehouses at this stage are used to generate

activity or transactions that are passed back into the operational systems for use in

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the daily activity of the organization.

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4.5.2. Components of a data warehouse

A Data Warehouse Architecture (DWA) is a way of representing the overall

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structure of data, communication, processing and presentation that exists for end-

user computing within the enterprise. The architecture is made up of a number of

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interconnected parts:

- External Database Layer

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- Information Access Layer

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- Data Access Layer

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- Metadata Layer

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- Process Management Layer

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- Application Messaging Layer

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- Data Warehouse Layer

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- Data Staging Layer

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Application Messaging

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Data Warehouse Architecture

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Data
Dire

DATA DIRECTORY FUNCTIONS

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ctory

PROCESS MANAGEMENT

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Data Warehouse Architecture

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i. External Database Layer : Operational systems process data to support critical

operational needs. In order to do that, operational databases have been historically

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created to provide an efficient processing structure for a relatively small number of

well-defined business transactions. Because of the limited focus of operational

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systems, the databases designed to support operational systems have difficulty

accessing the data for other management or informational purposes. The goal of

data warehousing is to free the information that is locked up in the operational

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databases and to mix it with information from other external sources of data.

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ii. Information Access Layer : The Information Access layer of the Data Warehouse

Architecture is the layer that the end-user deals with directly. In particular, it

represents the tools that the end-user normally uses day to day, e.g., Excel, Focus,

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Access, etc. This layer also includes the hardware and software involved in

displaying and printing reports, spreadsheets, graphs and charts for analysis and

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presentation. There are significant problems in making the raw data contained in

operational systems available to end-user tools. One of the keys to this is to find a

common data language that can be used throughout the enterprise.

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iii. Data Access Layer : The Data Access Layer is involved with allowing the

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Information Access Layer to talk to the Operational Layer. The Data Access Layer

not only spans different DBMSs and file systems on the same hardware, it spans

manufacturers and network protocols as well. One of the keys to a Data

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Warehousing strategy is to provide end-users with "universal data access".

Universal data access means that, theoretically at least, end-users, regardless of

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location or Information Access tool, should be able to access any or all of the data

in the enterprise that is necessary for them to do their job. The Data Access Layer is

responsible for interfacing between Information Access tools and Operational

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Databases.

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iv. Metadata Layer : Metadata, or "data about data", is used not only to inform

operators and users of the data warehouse about its status and the information held

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within the data warehouse, but also as a means of integration of incoming data and

a tool to update and refine the underlying Data Warehouse model. Examples of data

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warehouse metadata include table and column names, their detailed descriptions,

their connection to business meaningful names, the most recent data load date, the

business meaning of a data item and the number of users that are logged in

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currently. In order to provide for universal data access, it is absolutely necessary to

maintain some form of data directory or repository of meta-data information. In

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order to have a fully functional warehouse, it is necessary to have a variety of meta-

data available, data about the end-user views of data and data about the operational

databases. Ideally, end-users should be able to access data from the data warehouse

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without having to know where that data resides or the form in which it is stored.

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v. Process Management Layer : The Process Management Layer is involved in

scheduling the various tasks that must be accomplished to build and maintain the

data warehouse and data directory information. The Process Management Layer can

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be considered as the scheduler or the high-level job control for the many processes

that must occur to keep the Data Warehouse up-to-date.

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vi. Application Messaging Layer : The Application Message Layer has to do with

transporting information around the enterprise computing network. Application

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Messaging can be used to isolate applications, operational or informational, from

the exact data format on either end. Application Messaging can also be used to

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collect transactions or messages and deliver them to a certain location at a certain

time.

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vii. Data Warehouse Layer : The data warehouse must be organised to hold

information in a structure that best supports not only query and reporting, but also

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advanced analysis techniques, like data mining. Most data warehouses hold

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information for at least 1 year and sometimes can reach half century, depending on

the business/ operations data retention requirement. In some cases, one can think of

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the Data Warehouse simply as a logical or virtual view of data. In many instances,

the data warehouse may not actually involve storing data. In a Physical Data

Warehouse, copies of operational and or external data are actually stored in a form

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that is easy to access and is highly flexible. Data Warehouses are stored on

client/server platforms, but they are often stored on main frames as well.

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viii. Data Staging Layer : Data Staging is also called copy management or

replication management, but it includes all of the processes necessary to select, edit,

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summarize, combine and load data warehouse and information access data from

operational and/or external databases. Data Staging involves complex

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programming. Data Staging may also involve data quality analysis programs and

filters that identify patterns and data structures within existing operational data.

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4.5.3. Advantages of using data warehouse

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There are many advantages to using a data warehouse, some of them are:

- Enhances end-user access to a wide variety of data.

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- Business decision makers can get the trend reports e.g. the item with the most

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sales in a particular area / country for the last two years. This may be helpful for

future investments in a particular item.

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- Increases data consistency.

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- Increases productivity and decreases computing costs.

- Is able to combine data from different sources, in one place.

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- It provides an infrastructure that could support changes to data and replication of

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the changed data back into the operational systems.

4.5.4. Concerns in using data warehouse

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- Extracting, cleaning and loading data could be time consuming. But this can be

made easy with the help of warehousing tools.

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- Problems of compatibility with systems already in place e.g. transaction

processing system.

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- Providing training to end-users.

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- Security could develop into a serious issue, especially if the data warehouse is

web accessible.

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Activity 4. 5.

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Discuss the components of a Data Warehouse.

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4.6. Data Mining

Data mining is the non-trivial process of identifying valid, novel, potentially useful,

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and ultimately understandable patterns in data. With the widespread use of databases and

the explosive growth in their sizes, organizations are faced with the problem of information

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overload. The problem of effectively utilizing these massive volumes of data is becoming a

major problem for all enterprises. Traditionally, we have been using data for querying a

reliable database repository via some well-circumscribed application. While this mode of

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interaction is satisfactory for a large class of applications, there exist many other

applications which demand exploratory data analyses. Data mining techniques support

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automatic exploration of data. Data mining attempts to source out patterns and trends in the

data and infers rules from these patterns. The evolution of data mining began when business

data was first stored in computers, and technologies were generated to allow users to

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navigate through the data in real time.

4.6.1. Definitions

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Data mining, the extraction of the hidden predictive information from large

databases, is a powerful new technology with great potential to analyze important

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information in the data warehouse. Data mining scours databases for hidden

patterns, finding predictive information that experts may miss, as it goes beyond

their expectations. When implemented on a high performance client/server or

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parallel processing computers, data mining tools can analyze massive databases to

deliver answers to questions such as which clients are most likely to respond to the

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next promotional mailing. There is an increasing desire to use this new technology

in the new application domain, and a growing perception that these large passive

databases can be made into useful actionable information.

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The term 'data mining' refers to the finding of relevant and useful

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information from databases. Data mining and knowledge discovery in the databases

is a new interdisciplinary field, merging ideas from statistics, machine learning,

databases and parallel computing. Researchers have defined the term 'data mining'

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in many ways.

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A few of these definitions are as follows :

1. Data mining or knowledge discovery in databases, as it is also known, is the non-trivial

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extraction of implicit, previously unknown and potentially useful information from the data. This

encompasses a number of technical approaches, such as clustering, data summarization,

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classification, finding dependency networks, analyzing changes, and detecting anomalies.

Though the terms data mining and Knowledge Discovery in Databases (KDD) are

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used synonymously, there is difference and similarity between data mining and

knowledge discovery. Data retrieval, in its usual sense in database literature,

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attempts to retrieve data that is stored explicitly in the database and presents it to the

user in a way that the user can understand. It does not attempt to extract implicit

information. One may argue that if we store 'date-of-birth' as a field in the database

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and extract 'age' from it, the information received from the database is not explicitly

available. But that information is not 'non-trivial'. If one attempts to find out the

average age of the employees in a particular company, it can be visualized as a sort

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of non-trivial extraction of implicit information. The task is surely 'non-trivial

extraction of implicit information'. It is a type of data mining task, but at a very low

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level. A higher level task would be to find correlations between the average age and

average income of individuals in an enterprise.

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2. Data mining is the search for the relationships and global patterns that exist in

large databases but are hidden among vast amounts of data, such as the

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relationship between patient data and their medical diagnosis. This relationship

represents valuable knowledge about the database, and the objects in the database,

if the database is a faithful mirror of the real world registered by the database.

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Consider the employee database and let us assume that we have some tools

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available with us to determine some relationships between fields, say relationship

between age and lunch-patterns. Assume, for example, that we find that most of

employees in their thirties like to eat pizzas, burgers or Chinese food during their

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lunch break. Employees in their forties prefer to carry a home-cooked lunch from

their homes. And employees in their fifties take fruits and salads during lunch. If

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our tool finds this pattern from the database which records the lunch activities of all

employees for last few months, then we can term our tool as a data mining tool.

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3.

Data mining refers to using a variety of techniques to identify nuggets of

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information or decision-making knowledge in the database and extracting these in

such a way that they can be put to use in areas such as decision support, prediction,

forecasting and estimation. The data is often voluminous, but it has low value and

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no direct use can be made of it. It is the hidden information in the data that is

useful.

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Data mining is a process of finding value from volume. In any enterprise, the

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amount of transactional data generated during its day-to-day operations is massive

in volume. Although these transactions record every instance of any activity, it is of

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little use in decision making. Data mining attempts to extract smaller pieces of

valuable information from this massive database.

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4. Discovering relations that connect variables in a database is the subject of data

mining. The data mining system self-learns from the previous history of the

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investigated system, formulating and testing hypothesis about rules which systems

obey. When concise and valuable knowledge about the system of interest is

discovered, it can and should be interpreted into some decision support system,

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which helps the manager to make wise and informed business decision.

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Data mining is essentially a system that learns from the existing data. There are two

disciplines which address such problems--Statistics and Machine Learning.

Statistics provide sufficient tools for data analysis and machine learning deals with

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different learning methodologies. While statistical methods are theory-rich-data-

poor, data mining is data-rich-theory-poor approach. On the other hand machine

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learning deals with whole gamut of learning theory, which most often data mining

is restricted to areas of learning with partially specified data.

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5. Data mining is the process of discovering meaningful, new correlation patterns

and trends by sifting through large amount of data stored in repositories, using

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pattern recognition techniques as well as statistical and mathematical techniques.

One important aspect of data mining is that it scans through a large volume of data

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to discover patterns and correlations between attributes. Thus, though there are

techniques like clustering, decision trees, etc., existing in different disciplines, these

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are not readily applicable to data mining as they are not designed to handle large

amounts of data. Thus, in order to apply statistical and mathematical tools, we have

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to modify these techniques to be able efficiently sift through large amounts of data

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stored in the secondary memory.

4.6.2. KDD vs. Data Mining

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Knowledge Discovery in Database (KDD) was formalized in 1989, with

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reference to the general concept of being broad and high level in the pursuit of

seeking knowledge from data. The term data mining was then coined; this high-

level application technique is used to present and analyze data for decision-makers.

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Knowledge Discovery in Databases is the process of identifying a valid, potentially

useful and ultimately understandable structure in data. This process involves

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selecting or sampling data from a data warehouse, cleaning or preprocessing it,

transforming or reducing it (if needed), applying a data mining component to

produce a structure, and then evaluating the derived structure.

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Data Mining is a step in the KDD process concerned with the algorithmic means by

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which patterns or structures are enumerated from the data under acceptable

computational efficiency limitations.

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4.6.3. Data Mining Techniques

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Two fundamental goals of data mining are : prediction and description.

Prediction makes use of existing variables in the database in order to predict

unknown or future values of interest, and description focuses on finding patterns

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describing the data and the subsequent presentation for user interpretation. The

relative emphasis of both prediction and description differ with respect to the

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underlying application and the technique. There are several data mining techniques

fulfilling these objectives. Some of these are associations, classifications, sequential

patterns and clustering. The basic premise of an association is to find all

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associations, such that the presence of one set of items in a transaction implies the

other items. Classification develops profiles of different groups. Sequential patterns

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identify sequential patterns subject to a user-specified minimum constraint.

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Clustering segments a database into subsets or clusters.

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Another approach is to classify the techniques as :

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? User-guided or verification-driven data mining, and

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? Discovery-driven or automatic discovery of rules.

Verification Model

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In this process of data mining, the user makes a hypothesis and tests the

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hypothesis on the data to verify its validity. The emphasis is on the user who is

responsible for formulating the hypothesis and issuing the query on the data to

affirm or negate the hypothesis. For example, in a supermarket, with a limited

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budget for a mailing campaign to launch a new product, it is important to identify

the section of the population most likely to buy the new product. The user

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formulates a hypothesis to identify potential customers and their common

characteristics. Historical data about transactions and demographic information can

then be queried to reveal comparable purchases and the characteristics shared by

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those purchasers. The whole operation can be repeated by successive refinements of

hypotheses until the required limit is reached. The user may come up with a new

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hypothesis or may refine the existing one and verify it against the database.

Discovery Model

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The discovery model differs in its emphasis, in that it is the system

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automatically discovering important information hidden in the data.' The data is

sifted in search of frequently occurring patterns, trends and generalizations about

the data without intervention or guidance from the user.

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The manner in which the rules are discovered depends on the class of the data

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mining application. An example of such a model is a supermarket database, which

is mined to discover the particular groups of customers to target for a mailing

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campaign. The data is searched with no hypothesis in mind other than for the

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system to group the customers according to the common characteristics found.

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Typical discovery driven tasks

Discovery of association rules

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Discovery of classification rules

Clustering

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Discovery of frequent episodes
Deviation detection

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i. Discovery of Association rules : An association rule is an expression of the form

X => Y, where X and Y are the sets of items. The intuitive meaning of such a rule is

that the transaction of the database which contains X tends to contain Y. Given a

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database, the goal is to discover all the rules that have the support and confidence

greater than or equal to the minimum support and confidence, respectively. The

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association with a very high support and confidence is a pattern that occurs often in

the database that should be obvious to the end user. Patterns with extremely low

support and confidence should be regarded as of no significance. Only patterns with

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a combination of intermediate values of confidence and support provide the user

with interesting and previously unknown information.

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ii. Clustering : Clustering is a method of grouping data into different groups, so that

the data in each group share similar trends and patterns. Clustering constitutes a

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major class of data mining algorithms. The algorithm attempts to automatically

partition the data space into a set of regions or clusters, to which the examples in the

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table are assigned, either deterministically or probability-wise. The goal of the

process is to identify all sets of similar examples in the data, in some optimal

fashion.

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Clustering according to similarity is a concept which appears in many

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disciplines. If a measure of similarity is available, then there are a number of

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techniques for forming clusters.

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The objectives of clustering are:

?

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to uncover natural groupings

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?

to initiate hypothesis about the data

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?

to find consistent and valid organization of the data.

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A retailer may want to know where similarities exist in his customer base, so that he

can create and understand different groups. He can use the existing database of the

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different customers or different transactions collected over a period of time. The

clustering methods will help him in identifying different categories of customers.

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During the discovery process, the differences between data sets can be discovered

in order to separate them into different groups, and similarity between data sets can

be used to group similar data together.

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iii. Discovery of classification rules : Classification involves finding rules that

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partition the data into disjoint groups. There are several classification discovery

models. They are: the decision trees, neural networks, genetic algorithms and the

statistical models like linear/geometric discriminates. The applications include the

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credit card analysis, banking, medical applications and the like. Consider the

following example.

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The domestic flights in our country were at one time only operated by

Indian Airlines. Recently, many other private airlines began their operations for

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domestic travel. Some of the customers of Indian Airlines started flying with these

private airlines and, as a result, Indian Airlines lost these customers. Let us assume

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that Indian Airlines wants to understand why some customers remain loyal while

others leave. Ultimately, the airline wants to predict which customers it is most

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likely to lose to its competitors. Their aim is to build a model based on the historical

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data of loyal customers versus customers who have left. This becomes a

classification problem.

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iv. Frequent episodes : Frequent episodes are the sequence of events that occur

frequently, close to each other and are extracted from the time sequences. How

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close it has to be to consider it as frequent is domain dependent. This is given by the

user as the input and the output are the prediction rules for the time sequences.

These episodes can be of three types :

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The serial episodes which occur in sequence.

ii.

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The parallel episodes in which there are no constraints on the order

of the event types A and B.

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iii.

The non-serial and non-parallel episodes which occur in a sequence

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if the occurrences of A and B precede an occurrence of C, and there

is no constraint on the relative order of A and B given.

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v. Deviation detection : Deviation detection is to identify outlying points in a

particular data set, and explain whether they are due to noise or other impurities

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being present in the data or due to trivial reasons. It is usually applied with the

database segmentation, and is the source of true discovery, since the outliers

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express deviation from some previously known expectation and norm. By

calculating the values of measures of current data and comparing them with

previous data as well as with the normative data, the deviations can be obtained.

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They can be applied in forecasting, fraud detection, customer retention, etc.

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4.6.4. Types of Data Mining

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A data mining system can either be a portion of a data warehousing system

or a stand-alone system. Data sources are very diverse and appear in varied form. It

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can be textual data, image data, CAD data, Map data or ECG data. Some data are

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structured and some are unstructured. Data mining remains an important tool,

irrespective of the forms or sources of data.

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Types of Data Mining

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Sequence Mining

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Web Mining

Text Mining

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Spatial Data Mining

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i. Sequence Mining : Sequence mining is concerned with mining sequence data. In

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the discovery of association rules, we are interested in finding associations between

items irrespective of their order of occurrence. The discovery of temporal sequences

of events concerns causal relationships among the events in a sequence.

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ii. Web Mining : With the huge amount of information available online, the World

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Wide Web is a fertile area for data mining research. Web mining research is at the

crossroads of research from several research communities, such as database,

information retrieval etc. Web mining can be broken down into following subtasks:

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a) Resource finding : retrieving documents intended for the web.

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b) Information selection and preprocessing : automatically selecting and preprocessing

specific information from resources retrieved from the web.

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c) Generalization : to automatically discover general patterns at individual web sites

as well as across multiple sites.

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d) Analysis : validation and/or interpretation of the mined patterns.

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iii. Text Mining : The term text mining or KDT (Knowledge Discovery in Text) was

first proposed by Feldman and Dagan in 1996. They suggest that text documents be

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structured by means of information extraction or text categorization as a pre-

processing step before performing any kind of KDTs. Presently the term text

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mining, is being used to cover many applications such as text categorization,

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exploratory data analysis, text clustering, finding patterns in text databases, finding

sequential patterns in texts & Information Extraction.

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iv. Spatial Data Mining : Spatial data mining is the branch of data mining that deals

with spatial (location) data. The immense explosion in geographically-referenced

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data occasioned by developments in IT, digital mapping, remote sensing, and the

global diffusion of GIS, places demands on developing data driven inductive

approaches to spatial analysis and modeling. Spatial data mining is regarded as a

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special type of data mining that seeks to perform similar generic functions as

conventional data mining tools, but modified to take into account the special

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features of spatial information.

4.6.5. Issues and challenges in Data Mining

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Data mining systems depend on databases to supply the raw input and this

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raises problems, such as that database tends to be dynamic, incomplete, noisy and

large. Other problems also arise as a result of the inadequacy and irrelevance of the

information stored.

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Difficulties in data mining

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Limited information
Noise or missing data

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User interaction and prior knowledge
Uncertainty

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Size, updates and irrelevant fields

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i. Limited information

A database is often designed for purposes other then that of data mining and,

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sometimes, some attributes which are essential for knowledge discovery of the

application domain are not present in the data. Thus, it may be very difficult to

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discover significant knowledge about a given domain.

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ii. Noise and missing data

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Attributes that rely on subjective or measurement judgments can give rise to errors,

such that some examples may be misclassified. Missing data can be treated in a

number of ways--simply disregarding missing values, omitting corresponding

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records, inferring missing values from known values, and treating missing data as a

special value to be included additionally in the attribute domain. The data should be

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cleaned so that it is free of errors and missing data.

iii. User interaction and prior knowledge

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Since the KDD process is by definition interactive and iterative, it is challenging to

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provide a high performance, rapid-response environment that also assists the users

in the proper selection and matching of the appropriate techniques to achieve their

goals. There needs to be more human-computer interaction and less emphasis on

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total automation. The use of domain knowledge is important in all steps of the KDD

process. It would be convenient to design a KDD tool which is both interactive and

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iterative.

iv. Uncertainty

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This refers to the severity of error and the degree of noise in the data. Data precision

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is an important consideration in a discovery system. v. Size, updates and irrelevant

fields

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Databases tend to be large and dynamic, in that their contents are keep changing as

information is added, modified or removed. The problem with this, from the

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perspective of data mining, is how to ensure that the rules are up-to-date and

consistent with the most current information.

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4.6.6. Data Mining application areas

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The discipline of data mining is driven in part by new applications which

require new capabilities that are not currently being supplied by today's technology.

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These new applications can be naturally divided into following categories :

i. Business and E- commerce data

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This is a major source category of data for data mining applications.

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Business transactions : Business enterprises require necessary information for their

effective functioning in today`s competitive world.

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Electronic commerce : Electronic commerce produce large data sets in which the

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analysis of marketing patterns and risk patterns is critical. It is important to do this

in near-real time, in order to meet the demands of on-line transactions.

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ii. Scientific, Engineering and Healthcare data

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Scientific data tend to be a more complex in structure than business data.

Genomic data : Genomic sequencing and mapping efforts have produced a number

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of databases which are accessible on the web. Finding relationships between these

data sources is a challenge for data mining.

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Sensor data : Remote sensing data is another source of voluminous data. Remote

sensing satellites produce large amounts of data. A fundamental challenge is to

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understand the relationships among this data.

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Health care data : Hospitals, health care organizations, insurance companies, and

the concerned government agencies accumulate large collections of data about

patients and health care-related details. Understanding relationships in this data is

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critical for a wide variety of problems--ranging from determining what procedures

and clinical protocols are most effective, to how best deliver health care to the

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maximum number of people.

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Web data : The data on the web is growing not only in volume but also in

complexity. Web data now includes not only text, audio and video material, but also

numerical data.

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iii. Other applications

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There is a wide range of well-established business applications for data mining.

These include customer attrition, profiling, promotion forecasting, product cross-

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selling, fraud detection, targeted marketing, propensity analysis, credit scoring, risk

analysis, etc.

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Housing loan prepayment prediction : A home-finance loan actually has an average

life-span of only 7 to 10 years, due to prepayment.

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People prepay loans when they refinance or when they sell their home. The

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financial return that a home-finance institution derives from a loan depends on its

life-span. Therefore, it is necessary for the financial institutions to be able to predict

the life-spans of their loans.

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This information can be used to fine-tune loan parameters such as interest rates,

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points, and fees, in order to maximize profits.

Mortgage loan delinquency prediction : Loan defaults usually entail expenses and

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losses for the banks and other lending institutions. Data mining techniques can be

used to predict whether or not a loan would go delinquent within the succeeding 12

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months, based on historical data, on account information, borrower demographics,

and economic indicators.

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Crime detection : Crime detection is another area where data mining finds
application.

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Brand loyalty : Given a customer and the product he/she uses, we can predict

whether the customer will switch brands.

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Portfolio management : Given a particular financial asset, it is possible to predict

the return on investment to determine the

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inclusion of the asset in a folio or not.

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Customer retention : Given a database of past customers and their behaviour prior

to attrition, a model of customers most likely to leave can be developed. This model

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can be used for determining the best course of action for these customers.

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Activity. 4.6.

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Discuss the application areas of Data Mining.

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4.7. Market Basket Analysis (MBA)

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Market Basket Analysis is one of the most common and useful types of data

analysis for marketing. It is an algorithm that examines a long list of transactions in

order to determine which items are most frequently purchased together. The

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purpose of market basket analysis is to determine what products customers purchase

together. It takes its name from the idea of customers throwing all their purchases

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into a shopping cart (a "market basket") during grocery shopping. Knowing what

products people purchase as a group can be very helpful to a retailer or to any other

company. A store could use this information to place products frequently sold

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together into the same area. Direct marketers could use the basket analysis results to

determine what new products to offer their prior customers.

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The strength of market basket analysis is that by using computer data mining

tools, it is possible to find out, what products consumers would logically buy

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together. Once it is known that customers who buy one product are likely to buy

another, it is possible for the company to market the products together, or to make

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the purchasers of one product the target prospects for another. If it's known that

customers who buy a sweater from a certain mail-order catalog have a propensity

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toward buying a jacket from the same catalog, sales of jackets can be increased by

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having the telephone representatives describe and offer the jacket to anyone who

calls in to order the sweater. By targeting customers who are already known to be

likely buyers, the effectiveness of marketing is significantly increased. This is the

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purpose of market basket analysis ? to improve the effectiveness of marketing and

sales tactics using customer data already available to the company.

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4.7.1. Methodology

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The input to a Market Basket Analysis is normally a list of sales

transactions, where each column represents a product and each row represents either

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a sale or a customer, depending on whether the goal of the analysis is to find which

items sell together at the same time, or to the same person. In order to perform

market basket analysis, it is necessary to first have a list of transactions and what

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was purchased in each one. For example, consider the transactions of convenience

store customers, each of whom bought only a few items :

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Transaction 1: Frozen pizza, cola, milk

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Transaction 2: Milk, potato chips

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Transaction 3: Cola, frozen pizza

Transaction 4: Milk, pretzels

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Transaction 5: Cola, pretzels

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Each customer purchased a different basket of items, and at first glance,

there is no obvious relationship between any of the items purchased and any other

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item. The first step of a basket analysis is to cross-tabulate the data into a table,

allowing to see how often products occurred together. For these five convenience

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store purchases, the table looks as follows :

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Frozen Pizza Milk

Cola Potato Chips

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Pretzels

Frozen Pizza

2

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1

2

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0

0

Milk

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1

3

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1

1

1

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Cola

2

1

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3

0

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1

Potato Chips

0

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1

0

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1

0

Pretzels

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0

1

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1

0

2

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The central diagonal of the table shows how often each item was purchased

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with itself. Though this is significant for figuring some reliability statistics, it does

not show how items sell together. In the first row, out of the people who bought

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frozen pizza, one bought milk, two bought cola, and none bought potato chips or

pretzels. This hints at the fact that frozen pizza and cola may sell well together, and

should be placed side-by-side in the convenience store. Looking over the rest of the

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table, there is nowhere else that an item sold together with another item that

frequently. Hence, this is probably an actual cross-selling opportunity. Compare this

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to the second row of people who bought milk, one bought frozen pizza, one bought

cola, one bought potato chips, and one bought pretzels. It seems milk sells well with

everything in the store. There is probably not a good cross-selling opportunity with

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milk. This makes sense for a convenience store. People often come to a

convenience store for the purpose of buying milk, and will buy it regardless of

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anything else they're looking for.

In the real world, there would usually be more than five products, and would

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always have more than five transactions to look at. As a result, the distinction

between products that sell well together and products that do not would be much

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sharper. Hence, a market basket analysis of large amounts of data would be

performed using data mining software, rather than being done manually. The results

of market basket analysis are particularly useful because they take the form of

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immediately actionable association rules . These are rules in the form of "if

condition then result." For instance, from the above table, we could derive the

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association rules:

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i. If a customer purchases Frozen Pizza, then they will probably purchase Cola. ii.

If a customer purchases Cola, then they will probably purchase Frozen Pizza. These

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rules allow a store to immediately know that promotions involving frozen pizza and

cola will pay off. Whether it's placing the cola display right next to the frozen pizza,

advertising the two products together, or putting cola discount coupons on frozen

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pizza boxes, the convenience store will probably be able to increase sales of both

items through directed marketing. This is an example of the best kind of market

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basket analysis result. Market basket analysis occasionally produces inexplicable

rules. These rules are not obvious, but also don't lend themselves to immediate

marketing use. An example of this type of rule is one hardware store chain's

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discovery that toilet rings sell very well only when a new hardware store is opened.

There is no obvious reason for why do people only need toilet rings when a new

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store opens. In addition, while the company could offer a sale on toilet rings during

new store openings, it's hard to tell whether or not this will be a successful

promotion, since it's rather mysterious why they sell better at new openings at all.

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An inexplicable rule is not necessarily useless, but its business value is not obvious

and it does not lend itself to immediate use for cross-selling.

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4.7.2. Merits

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Knowing which products sell together can be very useful to any business.

The most obvious effect is the increase in sales that a retail store can achieve by

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reorganizing its products so that things that sell together are found together. This

facilitates impulse buying and helps ensure that customers who would buy a product

don't forget to buy it on account of not having seen it. In addition, this has the side

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effect of improving customer satisfaction. Once they've found one of the items they

want, the customer doesn't have to look all over the store for something they want to

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buy. Their other purchases are already located close-by. World Wide Web or

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catalog merchants get the same benefit, by conveniently organizing their catalog or

Web site so that items that sell together are found together.

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Outside of the store environment, basket analysis provides different benefits.

For a direct marketer, it is far preferable to market to existing customers, which are

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known to buy products and have a history with the company. The company already

has these people in its database, and knows a significant amount of information

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about them. After running a basket analysis, a direct marketer can contact its prior

customers with information about new products that have been shown to sell well

with the products they've already bought. Even when making sales to new

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customers, telephone representatives can offer buyers of a product discounts on any

other products they know sell with it, in order to increase the size of the sale.

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Market basket analysis has uses even outside the realm of marketing. It can

be useful for operations purposes to know which products sell together in order to

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stock inventory. Running out of one item can affect sales of associated items. The

reorder point of a product should be based on the inventory levels of several

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products, rather than just one. Basket analysis can be used in any case where several

different conditions lead to a result. For example, by studying the occurrence of side

effects in patients with multiple prescriptions, a hospital could find previously

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unknown drug interactions about which to warn patients.

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There are several advantages to market basket analysis over other types of

data mining. It is undirected. It is not necessary to choose a product that you want to

focus on in order to run a basket analysis. Instead, all products are considered, and

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the data mining software reveals which products are most important to the analysis.

In addition, the results of basket analysis are clear, understandable association rules

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that lend themselves to being immediately acted upon, and the individual

calculations involved are simple.

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4.7.3. Limitations

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Though an useful and productive type of marketing data mining, market

basket analysis does have a few limitations.

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i. The first is the kind of data needed to do an effective basket analysis. It is

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necessary to have a large number of real transactions to get meaningful data, but the

data's accuracy is compromised if all of the products do not occur with similar

frequency. Thus, in the above example, if milk is sold in almost every transaction,

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but glue only sells once or twice per month, putting both of them into the same

basket analysis will probably generate results that look impressive without being

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statistically significant. Acting on these results might not actually benefit

profitability. With only one or two glue customers, the data mining software will be

able to very confidently state what sells well with glue. But this may only be true

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for the one or two customers analyzed. However, this limitation can be overcome

by classifying items into a taxonomy.

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ii. Market basket analysis can sometimes present results that are actually due

to the success of previous marketing campaigns. If the convenience store had

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always been putting cola discount coupons on the frozen pizza, the fact that cola

and frozen pizza sell well together may come as no surprise to them. It does not

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give any new information, just show that previously existing marketing campaigns

are already working. In fact, the previous campaign may even be overshadowing a

real relationship. People would normally prefer to buy beer with pizza, but are only

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buying the cola because of the discount. In this case, the convenience store is

missing out on what could be a better promotion.

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4.7.4. Applications of MBA

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i. Store Layout Changes : The results of market basket analysis can be used by

stores to change their layout in ways that improve profitability. If the basket

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analysis shows that light bulbs and gardening tools sell well together in a hardware

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store, the obvious response is to put the light bulbs next to the gardening aisle. By

making it most convenient for the customer to buy high-profit items for the store,

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the store owner can maximize profit. The market basket analysis shows that this

tactic will probably work, since customers will already be looking to buy the item.

A catalog or web page can also be reorganized so that customers who are likely to

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buy a certain product have their attention directed to high-profit items.

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ii. Product Bundling : For companies that don't have a physical storefront, like mail-

order companies, Internet businesses, and catalog merchants, market basket analysis

can be more useful for developing promotions than for reorganizing product

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placement. By offering promotions such that the buyers of one item get discounts

on another they have been found likely to buy, sales of both items may be

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increased. In addition, basket analysis can be useful for direct marketers for

reducing the number of mailings or calls that need to be made. By calling only

customers who have shown themselves likely to want a product, the cost of

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marketing can be reduced while the response rate is increased.

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Other application areas

Although Market Basket Analysis conjures up pictures of shopping carts and

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supermarket shoppers, there are many other areas in which it can be applied. These

include: Analysis of credit card purchases.

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Analysis of telephone calling patterns.

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Identification of fraudulent medical insurance claims.

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Analysis of telecom service purchases.

Note that despite the terminology, there is no requirement for all the items to be

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purchased at the same time. The algorithms can be adapted to look at a sequence of

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purchases (or events) spread out over time. A predictive market basket analysis can

be used to identify sets of item purchases (or events) that generally occur in

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sequence : something of interest to direct marketers, criminologists and many

others.

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Activity 4. 7.

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Discuss the methodology of Market Basket Analysis.

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4.8. Click stream Analysis

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The Web Servers which handle traffic on an important site generate, daily,

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the Log files related to access and navigation paths. These Log files contain a

considerable mass of data, which is mostly superfluous or irrelevant in business

terms, which are difficult to code and which are unsuitable, in their original form, to

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be treated analytically with a cognitive objective. On the other hand, these files hide

the behaviour of the site "surfer", the interest points, the time spent, the

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"hesitations" and choices. Click stream analysis (sometimes called click stream

analytics) is the process of collecting, analyzing, and reporting aggregate data about

which pages visitors visit, in what order and which are the results of the succession

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of mouse clicks each visitor makes (that is, the click stream).

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There are two levels of click stream analysis, traffic analysis and e-

commerce analysis. Traffic analysis operates at the server level by collecting click

stream data related to the path the user takes when navigating through the site.

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Traffic analysis tracks how many pages are served to the user, how long it takes

pages to load, how often the user hits the browser's back or stop button, and how

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much data is transmitted before a user moves on. E-commerce-based analysis uses

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click stream data to determine the effectiveness of the site as a channel-to-market

by quantifying the user's behavior while on the Web site. It is used to keep track of

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what pages the user lingers on, what the user puts in or takes out of their shopping

cart, and what items the user purchases.

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Because a large volume of data can be gathered through click stream

analysis, many e-businesses rely on pre-programmed applications to help interpret

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the data and generate reports on specific areas of interest. Click stream analysis is

considered to be most effective when used in conjunction with other, more

traditional, market evaluation resources. Click stream analysis can provide valuable

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insights to help enterprises know more about the parties with which they do

business and thus act more proactively toward meeting their objectives.

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Specifically, effective click stream analysis can reveal :

- Who is potentially interested in offerings of the company?

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- What products are of interest to visitors?

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- Where are the sources of referrals?

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- When (which season or time of day) are people most likely to be

interested in offerings?

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- What are the patterns of buying? Do people tend to review new releases or

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references before perusing product offerings?

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Click stream analysis is one of the most universal applications today. All enterprises

with a Web presence have access to Web logs that capture Web-site activity. Thus,

they have similar information on visitors, referrers (entities that link visitors to your

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site), user logins, product offerings, Web content, server hits and visits. While

enterprises have this information, few take the time to manage and effectively

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utilize this information; and even fewer use models for integrating this information.

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While many find value in analyzing click stream information on its own, there is far

greater power in integrating this information. For example, if the enterprise

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integrates customer Web interactions so they become part of each customer's

profile, there is more complete and accurate customer information.

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The click stream is not just another data source that is extracted, cleaned,

and dumped into the data warehouse. The click stream is really an evolving

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collection of data sources. There are many Web server log file formats for capturing

click stream data. These log file formats have optional data components that, if

used, can be very helpful in identifying visitors, sessions, and the true meaning of

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behavior. Because of the distributed nature of the Web, click stream data is often

collected simultaneously by different physical servers, even when the visitor thinks

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that he or she is interacting with a single Web site.

We get click stream data from different parties. Besides log files, we may get click

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stream data from referring partners or from Internet service providers (ISPs). We

also may get click stream data from Web-watcher services. Another important form

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of click stream data is the search specification given to a search engine that then

directs the visitor to the Web site. The other big frustration with basic click stream

data is the anonymity of the session. Unless the visitor agrees to reveal his or her

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identity in some way, we often cannot be sure who he or she is or if we have ever

seen the visitor before.

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4.8.1. Challenges of Tracking with Click stream Data

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Click stream data contains many ambiguities. Identifying visitor origins,

visit sessions, and visitor identities is something of an interpretive art.

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i. Identifying the Visitor Origin

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If we are very lucky, our site is the default home page for the visitor's browser.

Every time the visitor opens his or her browser, our home page is the first thing he

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or she sees. This is pretty unlikely unless we are the Webmaster for a portal site or

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an intranet home page, but many sites have buttons that, when clicked, prompt the

visitor to set his or her URL as the browser's home page. For many Web sites, the

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most common source of visitors is from a browser bookmark. In order for this to

happen, the visitor will have to have previously bookmarked the site, and this will

occur only after the site's interest and trust levels cross the visitor's bookmark

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threshold.

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ii. Identifying the Session

Most web-centric data warehouse applications will require every visitor session

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(visit) to have its own unique identity tag, similar to a grocery store point-of-sale

ticket ID. We call this the session ID. The rows of every individual visitor action in

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a session, whether derived from the click stream or from an application interaction,

must contain this tag. The operational application generates this session ID and not

the Web server. The most powerful method of session tracking from Web server log

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records is to set a persistent cookie in the visitor's browser.

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iii. Identifying the Visitor

Identifying a specific visitor who logs onto a site presents some of the most

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challenging problems facing a site designer, Webmaster, or manager of data

warehousing for the following reasons :

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- Web visitors wish to be anonymous. They may have no reason to trust us, the

Internet, or their PC with personal identification or credit card information.

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- If we request a visitor's identity, he or she is likely to lie about it. It is believed that

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when asked their name on an Internet form, men will enter a pseudonym 50 percent

of the time and women will use a pseudonym 80 percent of the time.

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- We can't be sure which family member is visiting our site. If we obtain an identity

by association, for instance, from a persistent cookie left during a previous visit, the

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identification is only for the computer, not for the specific visitor. Any family

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member or company employee may have been using that particular computer at that

moment in time.

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- We can't assume that an individual is always at the same computer. Server-

provided cookies identify a computer, not an individual. If someone accesses the

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same Web site from an office computer, a home PC, and a laptop computer, a

different Web site cookie is probably put into each machine.

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iv. Proxy Servers

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When a browser makes an HTTP request, that request is not always served from the

server specified in a URL. Many ISPs make use of proxy servers to reduce Internet

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traffic. Proxy servers are used to cache frequently requested content at a location

between its intended source and an end visitor. Such proxies are employed

commonly by large ISPs. Proxy servers can introduce three problems. First, a proxy

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may deliver outdated content. Second, proxies may satisfy a content request without

properly notifying the originating server that the request has been served by the

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proxy. When a proxy handles a request, convention dictates that it should forward a

message that indicates that a proxy response has been made to the intended server,

but this is not reliable. As a consequence, our Webhouse may miss key events that

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are otherwise required to make sense of the events that comprise a browser/Web

site session. Third, if the visitor has come though a proxy, the Web site will not

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know who made the page request unless a cookie is present. It is important,

therefore, to make liberal use of expiration dates and no-proxy tags in the HTML

content of your Web site. This will help ensure that we are getting as much data as

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possible for our warehouse.

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4.8.2. Specific Dimensions for the Click stream

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Before we design specific click stream data marts, let's collect together as

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many dimensions as we can think of that may have relevance in a click stream

environment. Any single dimensional schema will not use all the dimensions at

once, but it is nice to have a portfolio of dimensions waiting to be used. The

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complete list of dimensions for a Web retailer could include:

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Date

Time of day

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Part

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Vendor

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Transaction

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Status

Carrier

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Facilities location

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Product

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Customer

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Media

Casual

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Service policy

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Internal organization

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Employee

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Page

Event

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Session

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Referral

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All the dimensions in the list, except for the last four, are familiar data ware house

dimensions. The last four, however, are the unique dimensions of the click stream

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and warrant some careful attention.

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Page Dimension : The page dimension describes the page context for a Web page

event. The grain of this dimension is the individual page.

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Event Dimension : The event dimension describes what happened on a particular

page at a particular point in time. The main interesting events are open page, refresh

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page, click link, and enter data. As dynamic pages based on XML become more

common, the event dimension will get much more interesting because the semantics

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of the page will be much more obvious to the Web server.

Session Dimension : The session dimension provides one or more levels of

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diagnosis for the visitor's session as a whole. This dimension is extremely important

because it provides a way to group sessions for insightful analysis. For example,

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this dimension would be used to ask :

? How many customers consulted our product information before ordering?

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? How many customers looked at our product information and never ordered?

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? How many customers began the ordering process but did not finish? And where

did they stop?

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Referral Dimension : The referral dimension describes how the customer arrived at

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the current page. Web server logs usually provide this information. The URL of the

previous page is identified, and in some cases, additional information is present. If

the referrer was a search engine, then usually the search string is specified. It is not

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worthwhile to put the raw search specification into our database because the search

specifications are so complicated that an analyst couldn't usefully query them. We

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assume that some kind of simplified and cleaned specification is placed in the

specification field.

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4.8.3. Integrating the Click stream Data Mart into the Enterprise Data Warehouse

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Consider the overall design of a series of data marts implemented for a Web-

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based computer retailer. The data marts correspond to all the business processes

needed by this retailer to run its business. The matrix method lists the data marts

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down the left side of the matrix and the dimensions used by the data marts across

the top of the matrix. The cells of the matrix contain Xs if the particular data mart

uses a particular dimension. Note that the matrix describes data marts, not

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individual fact tables. Typically, a data mart consists of a suite of closely associated

fact tables all describing a particular business process. A good way to start the

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design of a series of data marts is to define first-level data marts that are, as much as

possible, related to single sources of data. Once several of these first-level data

marts have been implemented, then second-level consolidated data marts, such as

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profitability, can be built that require data from the first-level marts to be combined.

Thus the entries in a given row of the matrix represent the existence of a dimension

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somewhere in the closely associated suite of tables defining a particular data mart.

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Following figure shows the completed bus matrix for a Web retailer. The

matrix has a number of striking characteristics. There are a lot of Xs. An X in a

given matrix column is, in effect, an invitation to the meeting for conforming that

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dimension. The average data mart uses six to eight dimensions. Some of the

dimensions, such as date/time, transaction, status/type, organization, and employee,

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appear in almost every data mart. The product and customer dimensions dominate

the whole middle part of the matrix, where they are attached to the data marts that

describe customer-oriented activities. At the top of the matrix, suppliers and parts

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dominate the processes of acquiring the parts that make up products and building

them to order for the customer. At the bottom of the matrix we have classic

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infrastructure and cost-driver data marts that are not tied directly to customer

behavior.

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1 2 3 4 5 6 7 8 9 101112 13 14 15

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X X X X X

X

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X X

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Supplier Deliveries

X X X X X X X

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Part Inventories

X X X X X

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Product Assembly Bill of Materials

X X X X

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X X

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X X

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Product Assembly to Order

X X X X X

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X X

X

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X X

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Product Promotions

X

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X

X X X

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Advertising

X

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X

X X

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Customer Inquiries

X

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X X

X X

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X

X X X X

Customer Communications

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X X

X

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X X

Web visitor Click stream

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X X X X X

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X

Product Sales Transactions

X

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X X

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X

X

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X

X X

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Product Shipments

X

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X X X X X

X

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X X X

Customer Billing

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X X

X

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X X X

Customer Payments

X

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X X

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X X

Product Returns

X

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X X

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X X

X

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X X X

Product Support

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X

X X

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X X

X

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X X X

Service Policy Orders

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X X

X

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X

X X X X

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Service Policy Responses

X

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X X

X X

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X

X X X

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Employee Labor

X

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X X

X

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X X

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Human Resources

X

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X X

X

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X X

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Facilities Operations

X

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X X

X

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X X

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Web Site Operations

X

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X X

X

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X X

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Note : 1. Date & Time, 2. Part, 3. Vendor, 4. Transaction, 5. Status & Type, 6. Carrier, 7.Facilities
location, 8. Product, 9. Customer, 10. Media, 11. Casual, 12. Service policy, 13. Internal
organization, 14. Employee, 15. Click stream (4 Dimensions).

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Web visitor click stream data mart shares the date/time, transaction, product,

customer, media, causal, and service policy dimensions with several other data

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marts nearby. In this sense it should be obvious that the Web visitor click-stream

data mart is well integrated into the fabric of the overall data warehouse for this

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retailer. Applications tying the Web visitor click stream will be easy to integrate

across all these data marts sharing these conformed dimensions because the separate

queries to each data mart will be able to be combined across individual rows of the

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report. The Web visitor click stream data mart contains the four special click stream

dimensions not found in the other data marts. These dimensions do not pose

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problem for applications. The ability of the Web visitor click stream data mart to

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bridge between the Web world and the brick-and-mortar world is exactly the

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advantage that we are looking for. We can constrain and group on attributes from

the four Web dimensions and explore the effect on the other business processes. For

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example, we can see what kinds of Web experience produce customers who

purchase certain kinds of service policies and then invoke certain levels of service

demands.

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Activity 4. 8.

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Discuss the challenges of tracking click stream data.

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4.9. Personalisation

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A role defines a group of activities-and the data and functions corresponding

to those activities-carried out by a person to achieve a desired business aim. A role

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determines how a business process will be carried out and how this process will

lead to the attainment of a particular business aim. The roles determine interface

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layouts, services, information, and applications required for each user. Roles are

flexible and can be changed easily. The role concept is extended further by

personalisation. Personalisation can determine the page layout, the look and feel of

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the portal, and even which information users receive and how they receive it. The

role concept ensures that the users get the information most pertinent to them, while

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personalisation means they receive the information in the format most suitable for

them. There are three ways to define personalization :

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Personalisation at the administrator level : Administrators can define

personalisation for each user by setting the design of the portal structure for

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different users. Administrator can define roles, work sets, portal layout, and access

methods for different users.

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Personalisation at the user level : Users can personalise their content within the

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control limits set by the administrator.

Automatic personalisation through predictive technology : Predictive technology

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allows for automatic personalisation based on user type, browser type, device type,

user location (whether inside or outside the firewall), connection bandwidth, and the

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type of event being handled.

4.10. Collaborative filtering

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Collaborative filtering (CF) is the method of making automatic predictions

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(filtering) about the interests of a user by collecting taste information from many

users (collaborating). The underlying assumption of CF approach is that, those who

agreed in the past tend will agree again in the future also. For example, a

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collaborative filtering or recommendation system for music tastes could make

predictions about which music a user should like given a partial list of that user's

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tastes (likes or dislikes).

4.10.1. History

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Collaborative filtering stems from the earlier system of information filtering,

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where relevant information is brought to the attention of the user by observing

patterns in previous behaviour and building a user profile. This system was

essentially unable to help with exploration of the web and suffered from the cold-

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start problem that new users had to build up tendencies before the filtering was

effective. The first system to use collaborative filtering was the Information

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Tapestry project at Xerox PARC. This system allowed users to find documents

based on previous comments by other users. There were many problems with this

system as it only worked for small groups of people and had to be accessed through

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word specific queries which largely defeated the purpose of collaborative filtering.

USENET Net news furthered collaborative filtering such that it was available for a

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mass scale of users. The system allowed users to rate material based on popularity,

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which then allowed other users to search for articles based on these ratings.

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4.10.2. Methodology

Collaborative filtering systems usually take two steps:

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- Look for users who share the same rating patterns with the active user. -

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Use the ratings from those like-minded users to calculate a prediction for the active

user.

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Another form of collaborative filtering can be based on implicit observations of

normal user behavior. In these systems one will observe what a user has done

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together with what all users have done and use that data to predict the user`s

behavior in the future or to predict how a user might like to behave if only they

were given a chance. These predictions then have to be filtered through business

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logic to determine how these predictions might affect what a business system ought

to do. It is, for instance, not useful to offer to sell somebody some music if they

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already have demonstrated that they own that music.

In the age of information explosion such techniques can prove very useful as

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the number of items in only one category (such as music, movies, books, news, web

pages) have become so large that a single person cannot possibly view them all in

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order to select relevant ones. Relying on a scoring or rating system which is

averaged across all users ignores specific demands of a user, and is particularly poor

in tasks where there is large variation in interest, for example in the

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recommendation of music. Obviously, other methods to combat information

explosion exist such as web search, data clustering, and more. More recently,

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collaborative filtering has been used in e-learning to promote and benefit from

students' collaboration.

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4.10.3. Types of Collaborative filtering

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i. Active filtering

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Active filtering is a method that in recent years has become increasingly

popular. This popularity increase is due to the fact that there is an ever growing base

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of information available to users of the World Wide Web. With an exponentially

growing amount of information being added to the internet, finding efficient and

valuable information is becoming more difficult. In recent years a basic search for

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information using the World Wide Web turns out thousands of results and a high

percentage of this information is not effective and -- more often than not --

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irrelevant as well. There are a large number of databases and search engines in the

market today to use for searches but a majority of the population is not familiar with

all the options available and this is where active filtering comes into effect.

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Active filtering differs from other methods of collaborative filtering due to

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the fact that it uses a peer-to-peer approach. This means that it is a system where

peers, coworkers, and people with similar interests rate products, reports, and other

material objects, also sharing this information over the web for other people to see.

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It is a system based on the fact that people want to share consumer information with

the other peers. The users of active filtering use lists of commonly used links to

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send the information over the web where others can view it and use the ratings of

the products to make their own decisions.

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Active collaborative filtering can be useful to many people in many situations. This

type of filtering can be extremely important and effective in a situation where a

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non-guided web search produces thousands of results that are not useful or effective

for the person locating the information. In cases where people are not comfortable

or knowledgeable about the array of databases that are available to them, active

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filtering is very useful and effective.

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Advantages

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There are many advantages to using or viewing an Active collaborative filtering.

One of these advantages is an actual rating given to something of interest by a

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person who has viewed the topic or product of interest. This produces a reasonable

explanation and rank from a reliable source, being the person who has come into

contact with the product. Another advantage of Active filtering is the fact that the

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people want to and ultimately do provide information regarding the matter at hand.

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Disadvantages

There are a few disadvantages of active filtering. One is that the opinion may be

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biased to the matter. Another disadvantage is that it is a very complex system and

that many people may not support or add necessary information to the topic.

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ii. Passive filtering

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A method of collaborative filtering that has great potential in the future is

passive filtering, which collects information implicitly. A web browser is used to

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record a user`s preferences by following and measuring their actions. These implicit

filters are then used to determine what else the user will like and recommend

potential items of interest. Implicit filtering relies on the actions of users to

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determine a value rating for specific content, such as:

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- Purchasing an item

- Repeatedly using, saving, printing an item

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- Refer or link to a site and

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- Number of times queried

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An important feature of passive collaborative filtering is using the time aspect to

determine whether a user is scanning a document or fully reading the material. The

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greatest strength of the system is that it takes away certain variables from the

analysis that would normally be present in active filtering.

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iii. Item based filtering

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Item based filtering is another method of collaborative filtering in which items are

rated and used as parameters instead of users. This type of filtering uses the ratings

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to group various items together in groups so that consumers can compare them.

Manufacturers can locate where their product stands in the market in a consumer

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based rating scale. Through this method of filtering, users or user groups use and

test the product and give it a rating that is relevant to the product and the product

class in which it falls. These users test many products and with the results, the

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products are classified based on the information which the rating holds. The

products are used and tested by the same user or group in order to get an accurate

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rating and eliminate some of the error that is possible in the tests that take place

under this type of filtering.

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iv. Explicit versus implicit filtering

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Within active and passive filtering there are explicit and implicit methods for

determining user preferences. Explicit collection of user preferences relies on the

evaluator user determining a value for the content based on some form of rating

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scale. This creates a cognitive aspect to collaborative filtering. Implicit collection

does not involve the direct input of opinion from the evaluator user, but rather they

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input their opinion through their actions while on the website. This reduces the

demand on the user and it reduces variables amongst users.

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Activity 4. 9.

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Compare and contrast various types of Collaborative filtering.

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Summary

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Analytical CRM is a consistent suite of analytical applications that help the

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firm to measure, predict, and optimize customer relationships. To address these

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business issues, analytical CRM includes a sound analytical infrastructure that allows to

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gather all the relevant information about customers and organise it consistently. The

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analytical capabilities allow a firm to identify new trends in the markets and then to

channel the investments in these markets. They also help you gain further insights into

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customer needs and preferences.

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Five Ss of managing customer data are : Strategy, Standards, Systems, Smart

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people & Statistics.

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Customer data is critical to every business. Accurate customer information

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enables the firm`s sales, service and marketing teams to target specific customers

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through an in-depth understanding of customers. Effective data management provides a

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number of business benefits : increased sales through better knowledge of customer

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needs, improved efficiency of business processes by eliminating duplication and wasted

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data collection & increased compliance and data security through standardisation and

centralisation of data.

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A Customer database is an organised collection of comprehensive

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information about individual customers or prospects that is current, accessible, and

actionable for such marketing purposes as lead generation, lead qualification, sale of a

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product or service, or maintenance of customer relationships.

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Consumer privacy laws and regulations seek to protect any individual from

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loss of privacy due to failures or limitations of corporate customer privacy

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measures. Some organisations have been involved in using their customer databases

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simply as assets to be exploited by selling the data to other firms, including

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marketers. Information systems ethics require a central understanding of how

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information technologies affect human choice, human action, and human potential.

A Data warehouse is an application with a computer database that collects,

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integrates and stores an organization's data with the aim of producing accurate and

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timely management of information and support for analysis techniques, such as data
mining. It is a repository of an organization's data, where the informational assets of
the organization are stored and managed, to support various activities such as

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reporting, analysis, decision-making, as well as other activities such as support for
optimization of organizational operational processes.

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Data mining is the non-trivial process of identifying valid, novel, potentially

useful, and ultimately understandable patterns in data. Data mining, the extraction of the

hidden predictive information from large databases, is a powerful new technology with

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great potential to analyze important information in the data warehouse. Types of Data

Mining are : Sequence Mining, Web Mining, Text Mining and Spatial Data Mining.

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Self Assessment Questions

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1. Define Analytical CRM ? What are it`s benefits ?

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2. What are the five Ss of Managing Customer data ?
3. What are the benefits of customer data management ?

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4. What is Customer database ? What are it`s uses ?

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5. Define Data Warehouse. What are its components ?
6. What is data mining ?

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7. What are the types of data mining ?

8. What are the difficulties in data mining ?

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9. Define Market Basket Analysis. What are it`s applications ?
10. What is Click stream analysis ?

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11. What are the levels of click stream analysis ?

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12. What are the challenges of tracking with click stream data ?

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13. What are the types of personalization ?
14. Define collaborative filtering.
15. What are the types of collaborative filtering ?

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Answer Key

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1. Analytical CRM is a consistent suite of analytical applications that help the firm to
measure, predict, and optimize customer relationships. To address these business issues,

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analytical CRM includes a sound analytical infrastructure that allows to gather all the
relevant information about customers and organise it consistently. It`s benefits are :

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Acquire new profitable customers, Improve the firm's relationships with existing customers
by addressing their individual needs, Optimize cross-selling and up-selling opportunities,
Improve customer loyalty and reduce customers' propensity to churn.

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2. Strategy : Defining what information is really important and what customer behavior
really counts.

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Standards : Ensuring that "customer" and other related terms mean the same thing
throughout the organization.

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Systems : Allotting sufficient processing power to process all the data.
Statistics : Turning data into knowledge through statistical processing.

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Smart people : Finding smart people to structure and interpret the analysis of
customer data.

3. Effective data management provides a number of business benefits :

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- increased sales through better knowledge of customer needs

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- improved efficiency of business processes by eliminating duplication and wasted data
collection

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- increased compliance and data security through standardisation and centralisation of
data. Other benefits are :

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Generating customer insight
Segmenting customers
Building innovation

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Building effective communications &
Creating loyalty

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4. A customer database is an organised collection of comprehensive information about
individual customers or prospects that is current, accessible, and actionable for such

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marketing purposes as lead generation, lead qualification, sale of a product or service, or
maintenance of customer relationships.

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Data in the customer database is used for the following purposes:

Customer acquisition (identifying prospects).

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Customer retention (deepening customer loyalty).

Increasing share of wallet by identifying which customers should receive a

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particular offer.

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Reactivating customers by making attractive timely offers.
Avoiding mistakes while interacting with customers.

5. A Data warehouse is an application with a computer database that collects, integrates and
stores an organization's data with the aim of producing accurate and timely management of

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information and support for analysis techniques, such as data mining. It is a repository of an
organization's data, where the informational assets of the organization are stored and
managed, to support various activities such as reporting, analysis, decision-making, as well
as other activities such as support for optimization of organizational operational processes.

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A Data Warehouse Architecture (DWA) is a way of representing the overall structure of

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data, communication, processing and presentation that exists for end-user computing within
the enterprise. The architecture is made up of a number of interconnected parts:

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- External Database Layer

- Information Access Layer

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- Data Access Layer

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- Metadata Layer

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- Process Management Layer
- Application Messaging Layer

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- Data Warehouse Layer
- Data Staging Layer

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6. Data mining is the non-trivial process of identifying valid, novel, potentially useful, and
ultimately understandable patterns in data. Data mining, the extraction of the hidden
predictive information from large databases, is a powerful new technology with great
potential to analyze important information in the data warehouse.

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7. Types of Data Mining are :

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Sequence Mining
Web Mining

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Text Mining and
Spatial Data Mining

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8. Difficulties in data mining

Limited information

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Noise or missing data

User interaction and prior

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knowledge Uncertainty and
Size, updates and irrelevant fields

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9. Market Basket Analysis is one of the most common and useful types of data analysis for
marketing. It is an algorithm that examines a long list of transactions in order to determine

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which items are most frequently purchased together. The strength of market basket analysis
is that by using computer data mining tools, it is possible to find out, what products
consumers would logically buy together.

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Market Basket Analysis finds application in following areas :

Store Layout Changes

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Product Bundling
Analysis of credit card purchases.

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Analysis of telephone calling patterns.

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Identification of fraudulent medical insurance claims and
Analysis of telecom service purchases.

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10. Click stream analysis (sometimes called click stream analytics) is the process of
collecting, analyzing, and reporting aggregate data about which pages visitors visit, in what
order and which are the results of the succession of mouse clicks each visitor makes.

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11. There are two levels of click stream analysis, traffic analysis and e-commerce analysis.

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Traffic analysis operates at the server level by collecting click stream data related to the
path the user takes when navigating through the site. E-commerce-based analysis uses click
stream data to determine the effectiveness of the site as a channel-to-market by quantifying
the user's behavior while on the Web site.

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12. Challenges of tracking with click stream data are :

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i. Identifying the Visitor Origin

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ii. Identifying the Session
iii. Identifying the Visitor

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iv. Proxy Servers

13. There are three ways to define personalization :

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Personalisation at the administrator level : Administrators can define personalisation for
each user by setting the design of the portal structure for different users. Administrator can
define roles, work sets, portal layout, and access methods for different users.

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Personalisation at the user level : Users can personalise their content within the control
limits set by the administrator.

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Automatic personalisation through predictive technology : Predictive technology allows for
automatic personalisation based on user type, browser type, device type, user location
(whether inside or outside the firewall), connection bandwidth, and the type of event being

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handled.

14. Collaborative filtering (CF) is the method of making automatic predictions (filtering)

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about the interests of a user by collecting taste information from many users
(collaborating). The underlying assumption of CF approach is that, those who agreed in the
past tend will agree again in the future also.

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15. Types of collaborative filtering are :

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i. Active filtering
ii. Passive filtering

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iii. Item based filtering and
iv. Explicit versus implicit filtering

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Glossary
Analytical CRM : Analytical CRM is a consistent suite of analytical applications that help the firm
to measure, predict, and optimize customer relationships.

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Customer Information Database : A customer database is an organised collection of comprehensive
information about individual customers or prospects that is current, accessible, and actionable for

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such marketing purposes as lead generation, lead qualification, sale of a product or service, or
maintenance of customer relationships.

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Customer privacy : Customer privacy measures are those taken by commercial organizations to
ensure that confidential customer data is not stolen or abused.

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Data warehouse : Data warehouse is an application with a computer database that collects,
integrates and stores an organization's data with the aim of producing accurate and timely
management of information and support for analysis techniques, such as data mining.

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Data Warehouse Architecture : A Data Warehouse Architecture (DWA) is a way of representing

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the overall structure of data, communication, processing and presentation that exists for end-user
computing within the enterprise.

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Data mining : Data mining is the non-trivial process of identifying valid, novel, potentially
useful, and ultimately understandable patterns in data.

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Clustering : Clustering is a method of grouping data into different groups, so that the data in each
group share similar trends and patterns.

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Market Basket Analysis : Market Basket Analysis is an algorithm that examines a long list of
transactions in order to determine which items are most frequently purchased together.

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Click stream analysis : Click stream analysis is the process of collecting, analyzing, and reporting
aggregate data about which pages visitors visit, in what order and which are the results of the
succession of mouse clicks each visitor makes (that is, the click stream).

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Collaborative filtering : Collaborative filtering is the method of making automatic predictions
(filtering) about the interests of a user by collecting taste information from many users

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(collaborating).
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This post was last modified on 14 March 2022

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