What is Customer Relationship Marketing (CRM)?

Customer Relationship Management and CRM

Customer Relationship Management (CRM) is a modern, data-driven marketing and customer support practice that companies utilize in order to retain current customers, and acquire potential customers. CRM is also compilation of limitless customer-oriented data points, including email address, phone number, transaction details and more. Companies will utilize this customer data for a number of various reasons, but primarily those which revolve around marketing and marketing analysis. In this blog post, we’re going to dive into some of the different ways this information can be used in a responsible manner that respects the privacy of the customers.

Email Marketing

When you shop online at a retail company for the first time, you’ll likely come across a pop-up overlay that offers a “x% Off Your First Order!” coupon if you provide the company with your email address. If the incentive is enticing enough and you are looking to make a purchase in the near future, you will likely be inclined to provide them with your email address in exchange for this incentive coupon (I know I do!). Assuming you entered your email address, the company captures this email address then automatically triggers an email to you with the promotional coupon code inside. This is where CRM Email Marketing begins to blossom.

After you receive the email, you decide to make a purchase. The company just acquired you as a new customer and took a hit on their profit margin as opportunity cost. A company will naturally want you to be a loyal customer, which means they want you to continue to make purchases from them. Now that they have your email address and know what types of products you go to them for, they are inclined to send you more email marketing deployments that are personalized based on your transaction history with them.

At an aggregate level, companies acquire new customers every day. Some may share similar buying behaviors (ie: recency, frequency, products, etc.), and thus they are bucketed alongside other customers with similar patterns. This is called segmentation, and it helps ensure marketers send meaningful emails to those who are most inclined to respond (ie: result in a transaction) to them. For example, if you frequently shop at Target.com for clothing and jewelry, you are more inclined to get emails from Target that promote their clothing lines and jewelry instead of video games and grocery products.

The company may send emails to you that promote products and services outside your preferences in order to expand your relationship with the company. Companies that sell a wide variety of products want to be your primary source for everything they offer and thus maximize their return on investment (ROI) they originally spent (ie: the promotional coupon) to acquire you as a customer. Responsible companies will limit these more general, unsegmented emails to times of the year when they need to meet sales and revenue goals such as Black Friday and other heavily promotional holidays.

Ultimately, smart companies know that when a customer provides any form of personally identifiable information (PII) such as an email address, it would be in the company’s – as well as the customer’s – best interest to ensure that it uses that information responsibly. As it relates to email marketing, this means that a company should respect that a customer probably does not want to receive daily emails from the company if said customer only purchases from the company once every year. If a company violates this unspoken trust, the customer will likely unsubscribe from the company’s email marketing program, which severely decreases the chance the customer will purchase from them in the future.

This opportunity cost is something companies should always consider before sending out an email. Some other questions worth considering could be:

  • Why should this segment of email addresses/customers receive this email?
  • If we send this email, will the revenue yield justify the number of those who unsubscribed?
  • What is the frequency of emails that we should be sending to this cohort?

Direct Mail

Assuming a customer made a transaction online and they would like their purchase to be shipped to their home, the company now has this customer’s home address on record, which can be utilized for direct mail marketing. Because of the costs of postage and print, direct mail is one of the most expensive channels for marketers. Over the years, companies have opted out of sending direct mail pieces because of its expense, as well as the difficulty in gauging the level of success (or lack thereof) from each campaign. When a direct mail marketing program is executed properly however, it can allow companies to stay top of mind with their current customers. And since many companies do not have a direct mail routine, the attractiveness of this marketing channel can truly help a company stand out compared to its competitors.

Segmenting customers is even more important when executing direct mail campaigns because of its costs. For example, sending an email to your entire database is not a farfetched idea; however, it is significantly less likely that a company will send a direct mail piece to everyone in their database because of how much more expensive it is. Sending an email to one email address may cost the company $0.00001, whereas sending a direct mail piece to that same customer may cost the company $0.87.

Because the risk and costs are much higher, companies must be more diligent with who they send their direct mail pieces to. The company wants to make sure they only send direct mail to customers who are most inclined to take action and purchase after receiving them. To do this, companies may look at their top customer cohort(s) and only send the direct mail pieces to those customers who spend and shop most frequently with the company.

Analytics

After a company has acquired email addresses, deployed several email marketing campaigns, and committed to a profitable direct mail marketing program, the company looks to measure its performance through data analysis. By segmenting customers based on buying behaviors, a company can reflect on each execution. At a high level of analysis, the company will look at the response rates of each channel by taking the number of responders (R) of each channel, and dividing them by the total audience size (A), which will yield the response rate percentage (RR%). This equation can be expressed as (R / A = RR%).

More often than not, the company will observe all channel-specific key performance indicators (KPIs) in tandem with the RR% in order to incrementally improve performance over time. This is the key to marketing analytics because it relates closely to why testing exists. Companies and marketers are constantly challenged with doing more with less, which means testing needs to be a disciplined practice in order for companies to scale their marketing programs and driving higher efficiencies of every marketing dollar within the budget.

In summary, CRM is a critical component to every company and customer. It allows companies to better understand what their customers want, and it allows customers to only receive information from their favorite companies that apply to them. A mature CRM strategy enhances the relationship between the company and the customer, which can yield higher loyalty and a truly symbiotic relationship.

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