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What is Customer Relationship Marketing (CRM)?

14 Jul
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Customer relationship marketing (CRM) focuses on building long-term relationships with customers to increase Customer Lifetime Value (CLV), engagement, loyalty, and customer alignment while reducing costs for bigger ROI.

Compared to traditional marketing, which is focused primarily on immediate sales, CRM focuses on creating a customer profile, understanding customer needs and wants, and providing a superior level of customer service that delivers value to the customer on an ongoing basis.

These methods, which can be learned in master’s-level online marketing courses including Santa Clara University’s “MKTG 3710, Tech Marketing: Winning Strategies for Effective Messaging,” lead customers to become repeat customers and powerful advocates for your business as well.

Why use CRM? Forming strong relationships with customers can lead to great results. It’s also necessary in today’s crowded business arena where the typical customer is often flooded with more choices and competitive marketing campaigns throughout every hour of their day. With so much overwhelming choice, “79% of customers say that they want brands to show that they understand and care about them [as an individual] before they buy anything.”1

Read on to learn more about customer relationship marketing and how you can master it for long-term business success.

What is CRM?

Unlike traditional marketing such as fliers, radio, and newspaper print ads that focus solely on immediate sales, CRM relies on less transactional methods to build relationships over time.

CRM typically involves four main stages:

  1. Customer acquisition
  2. Customer retention
  3. Customer expansion
  4. Customer reactivation

Businesses that want to build their CRM efforts also need to be proactive in communicating with their customers and resolving any issues that may arise as they work to attract, convert, close, and delight customers over and over again.

By taking these appropriate steps, businesses can build strong relationships with their customers and create lifelong fans of their products or services for years to come, boosting revenue and ROI.

Let’s take a closer look at the four relationship marketing stages of effective CRM.

The Four Stages of CRM

Customer Acquisition

According to Hubspot, customer acquisition is, “the process of attracting new customers, onboarding them, and converting them to your business.”2 Customer acquisition is important because it gives your business a way to grow, make money, and also prove your business is worthy of investing in by outside parties like investors, influencers and partners.

In 2022, with the rise of more interactive digital technologies that allow for data tracking and AI marketing on an individual customer basis, there are several key steps you can take as a marketer to boost customer relationships and garner better business outcomes via acquisition methods. These steps include:

  • Building a strong brand identity
  • Delivering excellent customer experiences
  • Educating your customers
  • Delivering special rewards/perks
  • Gathering useful feedback (via data, customer-generated content, reviews, etc.)
  • Leveraging storytelling as marketing3

The main purpose of customer acquisition is to drive action by effectively encouraging customers through the awareness, consideration, and decision stages of the customer decision journey that changes strangers into brand advocates.

Once a customer is acquired, your team will want to have that customer follow a series of steps that help them learn about your brand, interact with your brand, and eventually patronize your brand over and over again for increased lifetime value.

As an added bonus, customers that are happy with your business can help you acquire even more customers by providing very valuable word-of-mouth marketing (WOM), which is valuable, cost-free marketing for your brand.4 When happy customers talk about your brand in positive ways during their daily interactions with the people they know, they can help persuade them to become loyal customers as well.

Customer Retention

Acquiring new customers can be expensive. It’s estimated that the cost to acquire new customers is five to seven times higher than it is to retain current customers.5 Therefore, it can save your business considerable expense if you build strong customer relationships that lead to repeat customer transactions.

To be successful, every business should understand its own customer retention rates and how to improve them in order to build bigger profits in the long run.

Customer retention is important to drive the overall success of your business because:

  1. Attaining new customers often costs more than retaining current customers
  2. Loyal customers tend to be valuable repeat customers
  3. You can cross-sell and upsell to existing customers
  4. Retained customers can refer new customers to your business6

In modern marketing, Customer Retention Rate (CRR) is often a key performance indicator (KPI) in the industry because it demonstrates a “company’s ability to retain existing customers is fundamental to both its short-term and long-term success.”6

The good news is, CRR is measurable and how to calculate it properly—and leverage it fully—can be learned in a reputable master’s of marketing program.

Typically, CRR is measured on a weekly, quarterly, monthly, and/or annual basis but can be calculated whenever you want to gauge how your business is doing in this particular area.

The steps to calculate CRR are as follows:

  1. Identify the time frame you want to study
  2. Collect the number of existing customers at the start of the time period (S)
  3. Find the number of total customers at the end of the time period (E)
  4. Determine the number of new customers added within the time period (N)

Altogether, the complete CRR formula looks like this: CRR = ((E-N)/S) x 100.7

The goal of customer retention isn't just to have people engage with your business or brand once. Instead, it’s to create relationships you keep and can continue to capitalize on, over and over. Reflecting this, your CRR rate should be as high as possible. Healthy businesses tend to aim for a CRR that exceeds 85%.6

The lower your churn rate, the better. Churn rate is described by Merriam-Webster as “a regular, quantifiable process or rate of change that occurs in a business over a period of time as existing customers are lost and new customers are added.” Low churn leads to higher per-customer profits over time.

Customer Expansion

Customer expansion is the process of generating maximum value for your existing customers. This results in them spending more on your products and services as time goes on. Great customer expansion efforts are cost-effective, result in revenue boosts for your company, and are beneficial for both company and customer.9

Popular methods to increasing customer expansion include:

  • Upselling: Gets customers to spend more by upgrading to a premium product or service that is of a higher level. Be careful not to upsell too soon as it may be seen as a “cash grab” that can drive down your brand's reputation in the eyes of customers.
  • Cross-selling: Selling customers a related product or service
  • Add-ons: Customers buy enhancements and additional functions or features for a previous purchase. Add-ons only work if the customer has an existing base product or service

Using the data you’ve collected from your customers and sales transactions, you can determine what products/services to roll out for customer expansion and when to do so in a way that will deliver maximum results for your company as it works to achieve optimal expansion outcomes.

Customer Reactivation

Marketo, which has offered top-of-the-line automated marketing tools since 2008, describes customer reactivation (or re-engagement) as a technique to reach out to customers who have previously expressed interest, purchased, or otherwise engaged with your company but have since “gone dark” or disengaged.10

Effective customer reactivation campaigns can generate:

  • Greater customer revenues
  • Stronger customer relationships
  • Reduce the cost of customer acquisition
  • Customer intelligence that can be used for a competitive advantage

Commonly-used reactivation methods that can be learned in top-rated Online master of marketing programs in modern marketing include:

  • Emails
  • Direct mail
  • Social media engagement
  • Webcasts/webinars
  • Outbound telemarketing
  • Mobile initiatives
  • Display/paid media channel initiatives (though a data onboarding company and/or DMP/DSP service
  • Email-display retargeting campaigns (that lead to digital display ads in web browsers)5,10

For best results, Marketo suggests employing a short series of personalized emails (which leverage unique customer identifiers/date within) in order to re-engage customers, as opposed to sending only one email.

Marketo states emails with subject lines that include the exact dollar amount of a discount offer are twice as likely to spur interest. Also effective are emails that have a more personal tone and mention missing the customer in the subject lines. Rolling out these emails in short intervals and before 180 days of customer inactivity has passed is recommended.10

Don’t forget to make the reactivation process as easy and as painless for your dormant customers as possible. Have a step-by-step process already set up before you send out your remarketing initiatives.

Expert Tip: In order to make sure your reactivation emails are reaching the sender—for max ROI—use an Email Change of Address (ECOA) service which can find customers at their current, preferred email addresses.

Customer Relationship Marketing Examples

It should also be noted that CRM allows businesses to stay in close contact with customers and up to date on their changing needs. By understanding “how customers use a brand’s products and services and observing additional unmet needs, brands can create new features and offerings to meet those needs, further strengthening the relationship.”11

Here are a few relationship marketing examples you can use throughout the four stages of CRM to capitalize repeatedly on your efforts:

  • Excellent customer service
  • High rate of customer engagement, touchpoints, and feedback (surveys, polls, phone calls, etc.)
  • Loyalty programs
  • Customer events and community-building activities for customers
  • Discounts/bonuses for repeat customers
  • Thanking customers in visible forums (social media, email, ads, etc.)
  • Rewards for WOM-active customers11

Customer Relationship Technology

There are many powerful software tools your company can use to achieve better CRM, including:

  • Salesforce
  • Nimble
  • Hubspot
  • Zoho
  • Pipedrive12

Become a CRM expert

Modern marketing requires cutting-edge marketing skills to succeed in a fast-evolving industry. One way to maintain your work momentum as you expand your essential marketing knowledge of the latest skills is to earn your Online Master’s in Marketing degree from SCU Leavey.

As one of the nation’s top business schools, located in the heart of innovation powerhouse, Silicon Valley, SCU Leavey School of Business offers a holistic Online MSM program where you can learn various marketing technologies and how to use them. You’ll also become an expert in the essential principles, objectives, channels, and consumer psychology patterns that have built some of the world’s biggest brands.

Santa Clara University is the ideal university to help you achieve your goals. Set up some time to talk with an Admissions Advisor, and learn how SCU Leavey School of Business can propel your marketing future.