Customer Relationship Management (CRM): Acquisition and Retention Strategies

Posted on Apr 28, 2024 in Economy

Customer Acquisition

What is a New Customer?

There are several types of new customers that businesses may target:

  • New-to-category: Customers who are new to the product or service category.
  • New-to-Company: Customers who have not previously done business with the company.
  • Portfolio purchasing: Customers who purchase additional products or services from the company.
  • Strategic switching: Customers who switch from a competitor to the company.

Understanding the different types of new customers is crucial for developing effective customer acquisition strategies and estimating customer value.

Key Performance Indicators of Customer Acquisition Programmes

CRM practitioners focus on three key performance indicators (KPIs) for customer acquisition activities:

  1. Number of customers acquired: This measures the effectiveness of acquisition campaigns in attracting new customers.
  2. Cost per acquired customer: This assesses the efficiency of acquisition efforts by calculating the cost of acquiring each new customer.
  3. Value of the acquired customer: This evaluates the long-term potential of acquired customers in terms of revenue and profitability.

The ideal outcome is a low-cost program that generates a high number of valuable customers.

Making the Right Offer

Operational CRM tools can support customer acquisition through:

  • Lead management: Identifying and nurturing potential customers.
  • Campaign management: Planning, executing, and tracking marketing campaigns.
  • Event-based marketing: Triggering targeted communications based on customer actions or events.
  • Support from CRM analytics: Gaining insights from customer data to optimize acquisition strategies.

Customer Retention and Development

Customer retention involves maintaining long-term relationships with customers. It is the opposite of customer defection or churn. High retention rates indicate low defection rates.

Traditionally, customer retention is calculated as the percentage of customers doing business with a firm at the end of a financial year compared to the beginning of the year.

Manage Customer Retention or Value Retention?

While improving customer retention is a key objective for many CRM implementations, it’s important to consider sales, profitability, and customer value. The focus should be on retaining value-adding customers, not necessarily all customers. Some customers may be too costly to serve or may be strategic switchers seeking better deals, ultimately destroying value rather than adding it.

Economics of Customer Retention

Several factors contribute to the economic benefits of customer retention:

  1. Increasing purchases as tenure grows: Loyal customers tend to purchase more over time.
  2. Lower customer management costs over time: Retaining existing customers is generally less expensive than acquiring new ones.
  3. Customer referrals: Satisfied customers are more likely to recommend the company to others.
  4. Premium prices: Loyal customers may be willing to pay higher prices for the value they receive.

Key Performance Indicators of Customer Retention Programs

CRM practitioners track various KPIs for customer retention activities, including:

  • Raw customer retention rate
  • Raw customer retention rate in each customer segment
  • Sales-adjusted retention rate
  • Sales-adjusted retention rate in each customer segment
  • Profit-adjusted retention rate
  • Profit-adjusted retention rate in each customer segment
  • Cost of customer retention
  • Share of wallet of the retained customers
  • Customer churn rate per product category, sales region, or channel
  • Cost-effectiveness of customer retention tactics

Information Technology for Customer Relationship Management

CRM technologies encompass more than just a set of applications. They must be adaptable to changing customer needs, cater to industry-specific requirements, be accessible to external stakeholders and mobile professionals, operate across various communication channels, and integrate with other systems to provide a unified view of the customer. Effective implementation requires appropriate work processes and skills, as technology alone cannot achieve all CRM objectives.

The CRM Ecosystem

The CRM ecosystem consists of various players:

  • CRM solutions providers
  • Hardware and infrastructure vendors
  • Service providers

CRM Solutions

CRM solutions cover a wide range of functionalities:

  • Customer and product management
  • Marketing
  • Sales
  • Service and support
  • Partner relationship management (PRM)
  • CRM analytics
  • Multichannel CRM
  • Multiple communication technology channels
  • Mobile and Wireless solutions

Sales-force Automation

Sales-force automation (SFA) involves using technology to support salespeople and sales management in achieving their goals. Key technological elements include hardware (desktop, laptop, handheld devices, telephony technology) and software (point solutions and integrated solutions). Integrated packages can be dedicated to SFA or incorporated into comprehensive CRM suites covering marketing, service, and sales.

Benefits from SFA

SFA implementation offers numerous benefits, such as:

  • Accelerated cash flow
  • Shorter sales cycles and faster inventory turnover
  • Improved customer relations
  • Enhanced salesperson productivity
  • Increased sales revenue and market share growth
  • Higher win rates
  • Reduced cost of sales
  • More closing opportunities
  • Improved profitability