INTRODUCTION TO KNOWLEDGE & CUSTOMER RELATIONSHIPS

CHAPTER 1

OCS462 MANAGING CUSTOMER KNOWLDGE

Chapter Learning Objectives

Understand the basic concept of knowledge hierarchy and the types of knowledge.
Recognize the importance of knowledge management in building relationships with customers. Know the distinction between operational CRM and analytical CRM.

Explain the methods to increase the value of the customer base by using the Get-Keep-Grow model.
Define Customer Strategy Enterprise and understand the four quadrants of the Enterprise Strategy matrix.

Knowledge Hierarchy (or DIKW Pyramid)

Wisdom

Knowledge

Information

Data

Knowledge Hierarchy Data

Raw and unprocessed facts and figures, without
any added interpretation or analysis. Characterized as being discrete, objective facts or observations, which are unorganized and therefore have no meaning. Symbols E.g: It is raining.

Knowledge Hierarchy Information

Organized and structured data which can be learned,
known about or understood. Processed data which has relevance for a specific purpose or context. Who, what, where and when questions. Therefore meaningful, valuable, useful, and relevant. E.g: The temperature dropped 15 degrees and then it started raining.

Knowledge Hierarchy
Knowledge
The combination of data and information, to which is added expert opinion, skills, and experience, to result in a valuable
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asset which can be used to aid decision making through learning experience.

It exists privately in the minds of people, and it can be made external and public through being recorded in some way Answers how questions Ex: If the humidity is very high and the temperature drops substantially the atmospheres is often unlikely to be able to hold the moisture so it rains.

Knowledge Hierarchy
Wisdom
Evaluated understanding of principles, which there

has previously been no understanding. It asks

questions to which there is no easily-achievable answer. Wisdom requires judgement; between right and wrong, good and bad. It has the ability to increase effectiveness. Evaluate understanding Ex: It rains because it rains. And this encompasses an understanding of all the interactions that happen between raining, evaporation, air currents, temperature gradients, changes, and raining.

Types of knowledge
TACIT(hidden) EXPLICIT (open)
Articulated knowledge, which are expressed, codified, and recorded/written down.

Unwritten knowledge that is hidden in the mind of every individual.

Shared and communicated through activity and interaction.

Shared and communicated in written or verbal forms.

Examples: Past experiences On the job training Observation

Examples: Words, numbers & codes Documents, Procedures Mathematical & scientific formula Musical notations

Knowledge Management (KM)

Refers to a range of practices used by organizations to identify, create, represent, and distribute knowledge for reuse and learning across the organization.

The way a company stores, organize and accesses internal & external information.

Knowledge management applications/ tools are used to tie organizational objectives to the achievement of specific business outcomes such as improved performance, competitive advantage, and higher levels of innovation.

Customer Knowledge (CK)

Knowledge for, about and from customers.

Customer knowledge helps companies to understand customers needs, wants and to align processes, product and services to build customer relationship. The collection of information, insights & view points that companies has about its customer to build stronger relationship with its customers.

Customer knowledge can be explicit the structured customer information in databases. tacit knowledge in mind of employees and customers.

Customer Knowledge Management (CKM)

Customer Knowledge Management is the effective power of information and experience

in the gaining, development and retention of profitable customer.

The knowledge must then be applied and managed in ways that best support investment decisions and resource deployment.

CKM provide customer insight, profiles, habits, contact preferences and understanding to improve a companys relationship with the customer.

In the competition for a customer, the successful enterprise is the one with the most knowledge about an individual customers needs.

Knowledge management

Customer knowledge

Customer knowledge management

Customer insight, profiles, habits, contact preferences and understanding to improve a companys relationship with the customer.

The collection of The way a company stores, organize and accesses internal & information, insights & view points that companies has about its customer to build stronger relationship with its customers.

external information.

Issues of Customer Knowledge

Management of customers In B2B marketing, each salesperson knew each customer knowledge allows the company to allocate resources to key business activities in order to gain competitive advantage.

and prospect as individuals.

Well-trained salesperson recognized each customers buying habits, behaviors and preferences.

Implementation of CRM information systems and loyalty building programs, allows capturing detailed customer information on the companys database.

However, much of this information was never codified or recorded.

When a salesperson retired or quit, the company lost a great deal of specific customer information.

Importance of Managing Customer Knowledge

To ensure that To build stronger long-term customer relationships

information is
captured and can be shared across organization and also for future

To understand customers needs, wants .

To meet their expectation and perception.

To support business make informed decision.

usage.

Competitive advantage
Condition which enables a company to operate in a more efficient and higher-quality manner than the companies it competes with, and which results in benefits go to that company.

Thus, competitive advantage means having low costs, differentiation advantage, or a successful focus strategy.

By applying customer knowledge management (CKM) and customer relationship

management (CRM), companies can focus on allocating resources to key business activities
in order to gain competitive advantage

Source of competitive advantage

The ability to learn more about the customers faster than the competition
Companies knows who their customers are, how they behave and what buying patterns they display

The ability to turn that learning and customer knowledge into action faster than the competition
Companies more likely to spot up-and-coming market opportunities before their competitors, and rapidly create economic value for the business, its shareholders, and its customers.

Customer Relationship Management (CRM)

Application of technology in making managerial decisions with the end goal of increasing the value of the customer base through better relationships with customers, usually on an individually basis.

CRM involves the purchase of hardware and software that will enable a company to capture detailed information about individual customers that can be used for better target marketing.

By examining a customers past purchases, demographics, and psychographics, the company will know more about what the customer might be interested in.

Customer Relationship Management (CRM)

The company will send specific offers only to those with the highest possible interest and readiness to buy, and will save all the mailing or contact costs usually lost in mass marketing.

Using the information carefully, the company can improve customer purchase, cross-selling, and up-selling.

CRM helps track data and information about customers to enable better customer service, by treating different customers differently.

Examples of CRM initiatives

A car rental customer rents a car without having to complete another reservation profile.

An online customer buys a product without having to reenter his credit card number & address.

A supervisor orders more computer components via web page that displays his firms contract terms, his own spending to date, and his departmental authorizations.

CRM Process: Operational & Analytical

ANALYTICAL CRM OPERATIONAL CRM

The analysis of data created on the operational CRM and other operational data sources for the purpose of business performance management and customerspecific analysis.

Automation of integrated business processes involving front-office across sales, marketing & customer service via interconnected delivery channels.

Involved gaining information on customer & strategic planning to build customer value. CRM systems manage and evaluate knowledge about customers for a better understanding of customers behavior.

Involved software installation and the changes in process affecting the day-to day operations of a firm.

Data warehousing and data mining solutions are typical systems in the area.

CRM systems improve the efficiency of CRM business processes comprise solutions for sales force automation, marketing automation, and call center management.

Analytical CRM

Operational CRM

Focuses on the strategic planning needed to build customer value

Measurement, organizational changes required to implement strategy successfully

Focuses on the software installation and the changes in process affecting the day to day operation of the firm

Differences Among KM,CRM & CKM

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Roots of customer relationship management

Steps to increase the Value of the Customer Base is as follows:
Acquire profitable customers
Retain profitable customers longer Win back profitable customers Eliminate unprofitable customers Up-sell additional products in a solution Cross-sell other products to customers Referral and word-of-mouth benefits Reduce service and operational costs GROW

GET
KEEP

Customer Strategy Enterprise

An organization that builds its business model around, increasing value of the customer base.

Applies to companies that are product-oriented, operations-focused, or customerintimate.

The exchange between a customer and the enterprise becomes mutually beneficial, as customers give information in return for personalized service that meets their individual needs.

Ex : Insurance for women

Enterprise Strategy Map

A model which categorize and rate an enterprise capabilities in the arenas of interacting with customers and tailoring products/services for them.

An enterprise can be mapped in terms of two dimensions:

interaction with customers. tailoring (customizing) products/services for them.

Based on its rating in these two dimensions, a company can be pinpointed on the Enterprise Strategy Map

Enterprise Strategy Map

Interactivity Dimension Tailoring Dimension

High- if it knows the names of its individual customers, send different messages to different customers, and remembers the feedback from each one. Low- if it doesnt know its

High- if it mass-customizes a product or service in many different attributes and features Low- if it sells the same product or service, the same way to every customers.

customers identities, and sends

the same messages the same way to every customers.

Enterprise Strategy Map

high

Interaction with customers individually

III

Database Marketing

IV 1 to 1 Learning Relationships

Interacting
I
Mass Marketing
Customers addressed only in mass media
low

II Niche Marketing

Standard Products

Tailoring

Tailored Products
high

Quadrant I: Mass Marketing

LOW in individual interaction, LOW in tailoring/customization of products and services.

Companies that competes primarily on cost efficiencies based on economies of scale and low price.

Products are massively manufactured, distributed and advertised.

Company may sell millions of standard products to as many customers as possible

Less direct contact with end users, therefore less knowledge about the needs of the customers.

E.g. GM was the largest carmaker in the world in 2008, now reduce in rank to 2nd behind new leader, Toyota.

Enterprise Strategy Map

high

Interaction with customers individually

III

IV

Database Marketing

1 to 1 Learning Relationships

Interacting
I
Mass Marketing
Customers addressed only in mass media
low

II
Niche Marketing

Standard Products

Tailoring

Tailored Products
high

Quadrant II: Niche Marketing

LOW in individual interaction, HIGH in tailoring/customization of products and services.

Companies that focus on target markets, produce goods & services designed for those defined customer groups.

Customers can participate in the actual design and product development.

E.g. Mortgage products can have: 3 different interest rates (fixed or floating according to BLR) 3 different payment schedules (monthly, quarterly or annually), 2 different types (Islamic or Conventional) 2 down payment options (zero-entry costs or normal entry fees).

Enterprise Strategy Map

high

Interaction with customers individually

III

IV

Database Marketing

1 to 1 Learning Relationships

Interacting
I
Mass Marketing
Customers addressed only in mass media
low

II
Niche Marketing

Standard Products

Tailoring

Tailored Products
high

Quadrant III: Database Marketing

HIGH in individual interaction, LOW in tailoring/customization of products and services.

Companies utilizes database management to get better & efficient use of mailing lists and other customer information.

Technology has made it possible for a an enterprise to deal with the customers individually.

Database helps enterprise to identify and track the customer, by remembering information about the customer, and making the purchasing process easy and convenient.

Enterprise Strategy Map

high

Interaction with customers individually

III

IV

Database Marketing

1 to 1 Learning Relationships

Interacting
I
Mass Marketing
Customers addressed only in mass media
low

II
Niche Marketing

Standard Products

Tailoring

Tailored Products
high

Quadrant IV: One-to-One Learning Relationships

HIGH in individual interaction, HIGH in tailoring/customization of products and services.

One-to-One Marketing involves selling a single customer as many products as possible over a long period of time, and across different product lines.
Interacting with customers on a personal basis and customizing products to meet the customers needs.

Companies use data about customer to predict what each one needs next.

Able to treat different customers differently and increase mutual value with customer.

E.g. Insurance, finance & investment service, nutritionist & dietician, personal tutor, travel agency.

Enterprise Strategy Map

high

Interaction with customers individually

III

IV

Database Marketing
Companies utilizes database management to get better & efficient use of mailing lists and other customer information.

1 to 1 Learning Relationships
Companies use data about customer to predict what each one needs next. Able to treat different customers differently and increase mutual value with customer.
II

Interacting
I

Mass Marketing
Companies that competes primarily on cost efficiencies based on economies of scale and low price.

Niche Marketing
Companies that focus on target markets or niches, and produce goods & services designed for those defined customer groups.

Customers addressed only in mass media

low

Standard Products

Tailoring

Tailored Products
high

 If retention is so much more profitable than acquisition, why have companies persisted so long in spending more on getting new customer than keeping the ones they have? What would persuade them to change course?