Two Types of CRM Operational CRM is focused on the automation of the customer-facing parts of businesses. Various CRM software applications enable the marketing, selling and service functions to be automated. The major applications within operational CRM are as follows. CRM Value Chain CRM value chain identifies five key steps in the development and implementation of a CRM strategy :customer portfolio analysis, customer intimacy, network development, value proposition development, and manage customer life cycle. In brief, the five steps are as follows. Model of Customer Retention The customer retention process actually begins during acquisition, which creates customer expectations, including perceptions of product value and uniqueness. Initial product usage determines whether these expectations are met. Then other factors, such as ease of exit, ease of purchase, and customer service, come into play. Together these factors affect long-term customer behavior and determine the relationship between seller and buyer. Database Marketing Database marketing is now an essential part of marketing in many industries. The main principle of database marketing is that at least part of the communication organizations have with their consumers is direct. From this simple principle has grown a whole new discipline. However, it has not grown that quickly. The seeds of database marketing as we use it today were sown in the 19th century by the US mail order industry, which served so well the needs of remote farmers, ranchers, settlers and new townships. Creating and Managing Customer Relationship Setting up and managing individual customer relationships can be broken up into four interrelated implementation tasks: 1) Identify customers. Relationships are only possible with individuals, not with markets, segments, or populations. Therefore, the first task in setting up a relationship is to identify, individually, the party at the other end of the relationship. Customer Life Cycle Customer equity management recognizes that customer-firm relationships, like all relationships, evolve over time. Prospects, new buyers, and long-time customers do not have the same needs, and as their relationships with a company change, so do their expectations and behavior. The concept of the customer life cycle provides a framework for understanding and managing these differences. Steps for Effective CRM Implementation It is important that a CRM solution is business-oriented. This means that the solution should reflect the way the enterprise wishes to work in the future. To do this, it is necessary to start with the enterprise's CRM strategy and to ensure that once implemented the system will support the customer, channel and product strategies. Customer Lifetime Value The actual value of a customer is equivalent to a quantity that is frequently called the customer lifetime value (LTV), or the net present value of the stream of expected future financial contributions from the customer. Every customer of an enterprise today will be responsible for some specific series of events in the future, each of which will have a financial impact on the enterprise. Long-Term Customers Vs.Short-Term Customers LOYALTY MYTH 1 : Long-Term Customers Are More Desirable than Short-Term Customers. It is a natural extension of the underlying logic in Myth 1 that, if long-term customers are more desirable than short-term customers because they are believed to purchase more, then long-term customers must be better for business than short-term customers. Given that the foundation of this myth is incorrect, it should not be a surprise that this extension is also false. Customer Share-of-Wallet and Customer Loyalty Increases in customer loyalty will parallel increases in customers' share-of-wallet. But it is wrong to presume that share-of-wallet increases are driven by increases in customer loyalty. A number of issues affect customers' spending allocation. Increased loyalty is not typically the reason for increased share-of-spending; price is. Is Customer Revenue a Good Predictor of Profitability? Most firms treat customer revenue and customer profitability as synonymous. Revenue is a measure of purchase volume and, therefore, correlated to customer loyalty. As a result, firms tend to expend a great deal of effort on their highest-revenue customers. But revenue is typically not a good predictor of profitability. Some of the largest customers are the most unprofitable. CRM Application Customer relationship management applications are generally organized into the primary functions of marketing, sales and service. The following descriptions outline the main elements of each of these application areas. Business Questions for CRM Implementation Before you can effectively use a reference, you must have a good idea of what you are trying to accomplish with your data warehouse. Unlike traditional systems, these definitions might be somewhat fuzzy. Loyal Customers Are Less Expensive to Service than Nonloyal Customers? The fallacy that loyal customers are less expensive to service tha nonloyal customers has its origins in the manufacturing environment At its foundation are two seminal findings that dramatically influenced' the strategy and tactics of manufacturers around the world. The first is commonly referred to as the experience curve (also called the learning curve), originally popularized by the Boston Consulting Group. In essence, the theory behind the experience curve states that the costs of complex products and services will decline approximately 20 to 30 percent with each doubling of accumulated experience. Rules for Discussions with CRM Vendors Keep the following rules in mind when talking with a provider's references. They are all just common sense, but it's very easy to lose sight of possible miscommunications if you are not careful.