CRM in Retail - customer relationship, customer relationship management, customer data, customer database, customer preference, marketing activities, customer contacts, transactions, information, market basket analysis, retail analytics, target customers, Customer lifetime value, Customer pyramid, platinum segment, gold segment, iron segment, lead segment, RFM Analysis, Customer Retention Approaches, Frequent Shopper
Program, Special Customer Service, Personalization, Community
CRM in Retail - customer relationship, customer relationship management, customer data, customer database, customer preference, marketing activities, customer contacts, transactions, information, market basket analysis, retail analytics, target customers, Customer lifetime value, Customer pyramid, platinum segment, gold segment, iron segment, lead segment, RFM Analysis, Customer Retention Approaches, Frequent Shopper Program, Special Customer Service, Personalization, Community
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Abstract
Maintaining customer relationships has been identified as a primary and enduring problem for small firms. Database marketing, often touted as a means to improve customer relationships, is scarce in small firms. This paper examines relationship marketing, database, retail and small business literature to determine the appropriateness of a database-oriented marketing approach for small retail firms. This review concludes that small retail firms may benefit from the adoption of a database-oriented relationship marketing program, but that the firm must carefully consider its customer orientation, consumption norms in its sector, financial capabilities, and managerial resources and attitudes, before adopting such an approach.
Journal Information
The Journal of Marketing Theory and Practice is devoted to the publication of peer-reviewed articles addressing substantive, managerial issues in marketing. In the context of developing, enhancing, and disseminating marketing knowledge, JMTP publishes both conceptual and empirical work, so long as the work provides strong implications for the managerial practice of marketing. Unlike other marketing journals that may be more focused on specific methodological approaches, deal with theoretical issues without regard to application, or represent various subfields of marketing, JMTP is positioned as a general marketing journal affording a quality outlet for more managerially-oriented research across the scope of the field.
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Building on two centuries' experience, Taylor & Francis has grown rapidlyover the last two decades to become a leading international academic publisher.The Group publishes over 800 journals and over 1,800 new books each year, coveringa wide variety of subject areas and incorporating the journal imprints of Routledge,Carfax, Spon Press, Psychology Press, Martin Dunitz, and Taylor & Francis.Taylor & Francis is fully committed to the publication and dissemination of scholarly information of the highest quality, and today this remains the primary goal.
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customer relationship management (CRM)
a business philosophy and set of strategies, programs, and systems that focuses on identifying and building relationships with a retailer's best valued customer
percentage of the customers purchases made from the retailer
objective of CRM is to...
develop loyalty and repeat purchase behavior among a retailers best customers
customers are committed to purchasing merchandise and services from the retailer and will resist the activities of competitors attempting to attract their patronage
1. collecting customer data 2. analyzing customer data and identifying target customers 3. developing CRM through frequent-shopper programs 4. implementing CRM programs
first step in the CRM process
construct a customer database
customer database should contain the following info:
transactions customer contacts customer preferences descriptive information
five approaches to overcome problems of identifying information
1. ask customers for identifying info 2. connect internet and store purchasing data 3. offer frequent shopper programs 4. use biometrics to identify customers 5. place RFID chips on merchandise
frequent shopper programs (loyalty programs)
programs that identify and provide rewards to customers who patronize a retailer
measuring human characteristics such as a fingerprint, etc
the degree to which consumers feel they privacy has been violated depends on:
1. their control over their personal information when engaging in marketplace 2. their knowledge about the collection and use of personal info`
small files stored on a customer's computer that identify customers when they return to a website
EU perspective that customers own their personal info and most opt in or agree to share it
US consumers must tell retailers not to use their information
second step in CRM process
analyze consumer data and identifying target customers
two objectives for analyzing the customer database:
1. identifying the retailers best customers 2. using analytical methods to improve decisions made by retail managers
customer lifetime value (CLV)
the value of a customer, the expected contribution from the customer to the retailer's profits over the entire relationship with the retailer
a method often used in catalog and internet channels to determine customer segments that a retailer should target for promotion or catalog mailing
how recently, how frequently and how much money they have spent
applications of statistical techniques and models that seek to improve retail decisions through analyses of customer data
an information processing method that relies on search techniques to discover new insights into the buying patterns of customers, using large databases
the data mining tools determine which products appear in the market basket that a customer purchases during a single shopping trip
third step in CRM process:
developing CRM through frequent-shopper programs
two objectives of frequent shopper programs
1. to build a customer database that links customer data to their transactions 2. to encourage repeat purchase behavior and loyalty
To move frequnet-shopper programs beyond simple data collection and short term sales effects, retailers might:
1. create tiered rewards 2. treat frequent shoppers as VIPS 3. incorporate charitable activities 4. offer choices 5. reward all transactions 6. make the program transparent and simple
80% of sales or profits come from 20% of the customers
top 25% CLVs most profitable and loyal customers
second highest quartile, buy a significant amount of merchandise from the retailer but they are not
as loyal as the platinum customers and patronize some of the retailers competition
important objective of CRM program : to encourage gold to move to platinum
customers in this quartile purchase a modest amount of merchandise, but their spending levels, loyalty and profitability are not substantial enough for special treatment
customers with the lowest CLVs, can make a negative
contribution to the firm's income
often demand a lot of attention but do not buy much from the retailer
two approaches that retailers use to retain customers and increase the share of wallet
personalization and community
developing retail programs for small groups or individual customers, many small local retailers practice 1 to 1
a group of customers who are bound together by their loyalty to a retailer and the activities the retail sponsors and undertakes
involves offering and selling more products and services to existing customers to increase the retailer's share of wallet with these customers
the process by which a retailer attempts to offer the appropriate quantity of the right merchandise, in the right place, and at the right time so that it can meet the company's financial goals
highest classification level
second level in the merchandise classification scheme
departments are managed by
divisional merchandise managers (DMM)
third level for categorizing merchandise and organizing merchandise management activities, group of items targeting the same customer type
smallest unit available for inventory control
an assortment of items that customers see as substitutes for one another
approach to managing merchandise assigns one buyer or category manager to oversee all merchandising activities for the entire category
vendor, works with the retailer to develop a better understanding of customer shopping behaviors, create assortments that satisfy consumer needs, and improve the profitability of the merchandise category
financial ratio that assesses a buyer's contribution to ROA is gross margin return on inventory
gross margin/average inventory at cost
(1-gross margin percentage) x sales to stock
two paths to achieving high GMROI:
gross margin and inventory turnover
to improve the inventory turnover, buyers can...
either reduce the level of inventory or increase sales
approaches to increase inventory turnover
1. reduce number of SKUs within a category 2. reduce backup for each SKU 3. buy merchandise more often but in smaller quantities 4. increase sales and not increase inventory proportionally
approaches to increase gross margin:
1. increasing prices 2. reduce COGS 3. reduce customer discounts
when attempting to increase GMROI, buyers need to strike a balance to determine...
appropriate levels of inventory turnover and gross margins
merchandise planning process
1. forecast category sales 2. develop an assortment plan 3. determine appropriate inventory level and product availability 4. develop a plan for managing inventory 5. allocate merchandise for stores 6. buy merchandise 7. monitor and evaluate performance and make adjustments
staple merchandise (basic merchandise)
categories in continuous demand over an extended period of time
continuously monitoring merchandise sales and generating replacement orders, often automatically, when inventory levels drop below predetermined levels
in demand only for a relatively short period of time
consist of items whose sales fluctuate dramatically depending on the time of year
forecasting staple merchandise:
1. use of historical sales 2. adjustments for controllable and uncontrollable factors
forecasting fashion merchandise categories:
1. previous sales data 2. market research 3. fashion trend services 4. vendors
an unstructured personal interview in which the interviews uses extensive probing to get individual respondents to talk in detail about a subject
a small group of respondents interviewed by a moderator using a loosely structured format
the set of SKUs that a retailer will offer in a merchandise category in each of its stores and from the website
number of different merchandising subcategories offered
number of SKUs within a subcategory
process of determining the variety and assortment for a category
when editing the assortment, the buyer considers the following factors:
1. the firm's retail strategy 2. the effect of assortments on GMROI 3. the complementarities among categories 4. the effects of assortments on buying behavior 5. the physical characteristics of the store
stocking out of a specific size or color SKU
SKU rationalization programs
objective is to increase inventory turnover by reducing the number of SKUs without reducing sales
number of each SKU in the assortment plan that the buyer wants to have available for purchase in each store
typically have model stock plans for different store sizes, A B and C
product availability (level of support or service)
percentage of the demand for a particular SKU that is satisfied
cycle stock or base stock
inventory for which the level goes up and down due to the replenishment process
amount of time between the recognition that an order needs to be placed and the point at which the merchandise arrives in the store and is ready for sale
percentage of SKUs received complete on a particular order
amount of inventory below which the quantity available should not go of the items ill be out of stock before the next order arrives
specifies the amount of merchandise in dollars (not units) that needs to be delivered during each month, based on sales forecast, the planned discounts to employees and customers, and the level of inventory needed to support the sales and achieve the desired GMROI objectives
three types of analyses related to the monitoring and adjustment step:
sell through analysis ABC analysis of assortments multi-attribute analysis of vendors
compares actual and planned sales to determine whether price reductions (markdowns) are required
identifies the performance of individual SKUs in the assortment plan
uses a weighted average score for each vendor
the ratio of what customers receive (the perceived benefit of the products and services offered by the retailer) to what they have to pay for it
value = perceived benefits/price
high/low pricing strategy
discount the initial prices for merchandise through sales promotions
everyday low pricing (EDLP) strategy
emphasizes the continuity of retail prices at a level somewhere between the regular non sale price and the deep-discount sale price of high/low retailers
to reinforce EDLP strategy, guarantees customers that the retailer will have the lowest price in a market for products it sells
advantages of high/low pricing
-increases profits -creates excitement -sells slow moving merchandise
-assures customers of low prices -reduces advertising and operating expenses -reduces stock outs and improves inventory management
4 factors retailers consider in setting retail prices
1. the price sensitivity of customers 2. the cost of the merchandise 3. competition 4. legal constraints
measure of price sensitivity
% change in quantity sold/% change in price
(price elasticity X cost)/(price elasticity + 1)
practice of adjusting prices up or down in response to demand to control the sales generated
cost of merchandise + markup
difference between the retail price and the cost of an item
retail selling price initially set for the merchandise minus its costs
actual sales realized for the merchandise minus its costs
(MMU - workroom costs + cash discounts)/net sales
(MMU + reductions)/(100% + reductions)
break-even point quantity
quantity at which total revenue equals total cost, and then profit occurs for additional sales
total fixed costs / (actual unit sales price - unit variable cost)
first-degree price discrimination
charging each individual customer a different price based on their willingness to pay
ex auction biding
dynamic (individualized) pricing
process of charging different prices for goods or services based on the type of customer, time of the day, week or even season, and level of demand
ex service retailers like plane tickets
second degree price discrimination
offer the same multiple-price schedule to all customers, which encourages price-sensitive customers to take advantage of the lower price
examples of second degree
promotional markdowns clearance markdowns coupons price bundling multiple unit pricing
offer a discount on the price of the specific items when they're purchased
the practice of offering two or more different products or services for sale at one price
multiple-unit pricing (quantity discounts)
practice of offering two or more similar products or services for sale at one lower total price
third degree price discrimination
retailers often charge different prices to different demographic market segments
ex zone pricing
practice of charging different prices in different stores, markets, regions or zones
the practice of pricing certain items lower than normal to increase customers' traffic flow or boost sales of complementary products
products called loss leaders
offer a limited number of predetermined price points within a merchandise category
referas to the practice of using a price that ends in an odd number, typically 9
legal and ethical pricing issues
1. predatory pricing 2. resale price maintenance 3. horizontal price fixing 4. bait-and-switch tactics 5. scanned versus posted prices, and deceptive reference prices
arises when a dominant retailer sets prices below its costs to drive competitive retailers out of business
involves agreements between retailers that are in direct competition with each other to set the same prices
an unlawful, deceptive practice that lures customers into a store by advertising a product at a lower than normal price (the bait) and then, once they are in the store, induces them to purchase a high priced model (the switch)
a promise to customers to sell currently out-of-stock merchandise at the advertised price when it arrives
price against which buyers compare the actual selling price of the product, and thus it facilitates their evaluation process
three critical drivers of labor productivity are:
ability, leadership, and effort
identifies essential activities to be undertaken and is used to determine the qualifications of potential employees
to recruit skillful or potentially skillful employees, store managers:
1. prepare a job description 2. find potential applicants 3. screen the best candidates
Equal Employment Opportunity Commission (EEOC)
allows employees to sue employers that violate the law
affects the degree to which newcomers become involved, engaged contributors to the firm's successful performance
1. implement the retailer's strategy 2. build loyalty by providing a rewarding shopping experience 3. increase sales on a visit 4. control costs 5. meet legal requirements
enables customers to locate and purchase products in an efficient and timely manner with minimum hassle
offering customers an entertaining and enjoyable shopping experience
three elements in design of stores
layout signage and feature areas
grid racetrack and free form
parallel aisles with merchandise on shelves on both sides of the aisles, cash registers are located at the
entrances/exits of the stores
utilitarian benefits
loop, provides a major aisle that loops around the store to guide customer traffic around different departments within the store, POS terminals are typically located in each department bordering the track
department stores
free-form or boutique layout
arranges fixtures and aisles in asymmetric pattern, provides an intimate relaxing environment that facilitates shopping and browsing
specialty stores or departments within department stores costly personal selling becomes more important reduces display opportunities
call-to-action, category, promotional, point-of-sale
areas within a store that are designed to get
customers attention
ex windows entrances, displays
fixtures located on aisles and designed primarily to attract customer's attention and bring them into a department
displays located at end of aisles in stores using grid layout
promotional aisle or promotional area
space used to display merchandise that is being promoted
space management involves these key resource decisions:
1. allocation of store space to merchandise categories and brands 2. the location of the departments or merchandise categories and brands 3. the size of the store
factors to consider when deciding how much floor or shelf space to allocate:
1. productivity of the allocated space 2. merchandise's inventory turnover 3. impact on overall sales 4. display needs for the merchandise
demand/destination merchandise
products that customers have decided to buy before entering a store
diagram that shows how or where specific SKUs should be placed on retail shelves or displays to increase customer purchases
design of an environment by stimulation of the five senses
to create good atmosphere:
lighting, colors, music, scent, and even flavors