Vysoká Škola Ekonomická v Praze Fakulta financí a účetnictví
Katedra manažerského účetnictví
Hlavní specializace: Účetnictví a finanční řízení podniku
Martina Šťavíková
Analytical CRM: A Tool How To Manage Company's Profitability
Vedoucí diplomové práce: Prof.Ing. Bohumil Král, CSc.
2008
Ráda bych poděkovala panu Prof. Ing.
Bohumilu Královi, CSc. a panu Dipl.-Kfm. (FH) Stephanu Luegerovi za metodické vedení, odborné rady, připomínky a podporu při psaní
této diplomové práce.
Čestné prohlášení
Prohlašuji, že jsem tuto diplomovou práci zpracovala samostatně a veškerá použitá
literatura a další prameny jsou uvedeny v seznamu.
V Praze 30.4. 2008
Podpis diplomanta
Anotace
Cílem práce je nastínit možnosti využití analytického CRM k zvyšování ziskovosti společnosti. Analytický CRM se zabývá analýzou zákaznických dat, které slouží jako podpora pro operativní a strategické rozhodování firmy.
Teoretická část práce se zabývá různými způsoby segmentace zákazníků na základě demografických a geografických charakteristik, a také zákaznických potřeb, jejichž význam při segmentaci je v práci zdůrazňován. Dále vysvětluje využití nejrůznějších zákaznických metrik při řízení zákaznického portfolia a plánovaní kampaní. Pro ucelený obraz o analytickém CRM také nastiňuje jeho technickou stránku, ve které popisuje nejčastěji využívané techniky při získávání dat. Poslední část se zabývá způsoby, jak si udržet dobré zákazníky ve společnosti, zvyšovat jejich hodnotu v čase a tím zprostředkovaně i hodnotu společnosti.
Praktická část práce byla vyhotovena ve spolupráci se společností Makro Cash &
Carry. Analytický CRM je nedílnou součástí jejího zákaznického přístupu. Práce popisuje nejdůležitější změny, které byly podniknuty k přeměně Makra z produktově na zákaznicky orientovanou společnost, a podrobněji se věnuje práci kontrolorů, jež se analytickým CRM ve firmě zabývají.
CONTENT
SHRNUTÍ ... 1
INTRODUCTION ... 5
1. CHAPTER ... 8
1.1 WHAT IS CRM? ... 8
1.2 WHY DO WE NEED CRM? ... 10
1.3 TRENDS ON THE CONSUMER MARKET WITH RESPECT TO CRM ... 12
1.3.1 Demographical changes ... 12
1.3.2 Lack of time ... 13
1.3.3 Rising customer demands ... 13
1.3.4 Market changes ... 13
1.4 WHAT IS CUSTOMER RELATIONSHIP? ... 13
1.5 DIFFERENT LEVELS OF CRM ... 16
1.5.1 Strategic CRM ... 16
1.5.2 Operational CRM ... 17
1.5.3 Analytical CRM ... 18
2. CHAPTER ... 19
2.1 WHAT IS A CUSTOMER AND CUSTOMER PORTFOLIO? ... 19
2.2 MARKET SEGMENTATION ... 20
2.2.1 Identify relevant segmentation variables and analyze the market ... 20
2.2.2 Assess the value of the market segments and select the target markets to serve ... 24
3. CHAPTER ... 28
3.1 TRADITIONAL MARKETING METRICS ... 29
3.1.1 Market Share ... 29
3.1.2 Sales growth ... 29
3.2 CUSTOMER BASED METRICS ... 30
3.2.1 Acquisition rate ... 30
3.2.2 Acquisition costs ... 30
3.2.3 Customer frequency ... 31
3.2.4 Average Inter-Purchase Time (AIT) ... 32
3.2.5 Retention rate ... 32
3.2.6 RFM ... 34
3.2.7 Buying Quota I and II ... 36
3.2.8 Lifetime Value ... 37
4. CHAPTER ... 39
4.1 DATA MINING AND DATA ANALYSIS ... 39
4.1.1 Classification ... 41
4.1.2 Affinity grouping or association rules ... 41
4.1.3 Clustering ... 42
4.1.4 Prediction ... 42
4.2 DATA ATTRIBUTES ... 44
4.3 DATA WAREHOUSING AND OLAP ... 46
5. CHAPTER ... 48
5.1 SATISFACTION-LOYALTY-PROFIT CHAIN ... 48
5.2 LOYALTY SCHEMES ... 50
5.3 CROSS-SELLING ... 54
5.4 UP SELLING ... 55
5.5 TAILOR-MADE SOLUTIONS ... 55
5.6 SALES PROMOTIONS ... 57
5.7 BUILDING COMMITMENT ... 58
5.8 HOW TO SACK UNPROFITABLE CUSTOMERS? ... 58
6. CHAPTER ... 60
6.1 ANALYTICAL CRM IN RETAIL ... 60
6.2 WORLD RETAIL MARKET ... 61
6.3 CZECH RETAIL MARKET – CURRENT SITUATION AND FUTURE TRENDS ... 63
6.4 METRO GROUP ... 67
6.5 METRO CASH AND CARRY ... 68
6.6 MAKRO CASH &CARRY ... 69
6.7 BUILDING ASSORTMENT BASED ON CUSTOMER NEEDS ... 71
6.8 BUILDING RELATIONSHIP WITH KEY CUSTOMERS ... 75
6.9 INCREASED CUSTOMER SHOPPING EXPERIENCE ... 76
6.10 ORGANIZATIONAL CHANGES ... 77
6.11 SACKING OF CUSTOMERS ... 78
6.12 ANALYTICAL CRM IN MAKRO ... 79
6.13 DAILY SALES AND MARGIN MONITORING ... 80
6.14 AD-HOC ANALYSIS ... 81
6.15 CAMPAIGN MANAGEMENT ... 83
6.16 CATEGORY MANAGEMENT ... 84
6.17 CATALOGUE PERFORMANCE EVALUATION ... 86
6.18 STRATEGIC AND OPERATIONAL PROJECT PLANNING, MONITORING AND EVALUATION ... 89
CONCLUSION ... 93
SOURCES ... 96
LIST OF TABLES ... 98
LIST OF CHARTS ... 98
Shrnutí
Jack Welsh jednou řekl, že každá firma má pouze dva zdroje konkurenční výhody:
Jednou z nich je schopnost poznat lépe své zákazníky a druhou je schopnost toto poznání uplatnit v praxi rychleji než konkurence. Dnes mu, více než kdy jindy, můžeme dát za pravdu. Na straně nabídky došlo k velkému vzrůstu konkurence.
Díky obrovskému technologickému pokroku dochází k rychlému zastarávání inovací, které jsou navíc snáze napodobitelné. Konkurenční výhoda, která se dříve odvíjela od síly obchodní značky, ztrácí postupně na významu. Tuto skutečnost jen potvrzuje stoupající oblíbenost vlastních obchodních značek, které zákazníkům nabízí nejen nízkou cenu, ale také vysokou kvalitu výrobku. Na straně poptávky došlo k nárůstu požadavků zákazníků. Ti jsou dnes podstatně náročnější a také méně tolerantní k chybám společností. Není se proč divit. Často totiž platí, že pokud jedna firma zklame, existuje na trhu jiná, která zboží nabídne a dodá. Tato skutečnost klade na firmy vysoké nároky: Pokud chce uspět na trhu, musí přijít s něčím novým. S něčím, co bude obtížně napodobitelné a co uspokojí přání zákazníka do takové míry, že nebude mít potřebu přejít ke konkurenci. Mezi takové hodnoty patří např. péče o zákazníka, vybudování pevného obchodního vztahu se zákazníkem nebo špičkový zákaznický servis.
Tématem vztahu společnosti a zákazníka se zabývám na úvod své práce pod pojmem, který se hojně používá i v české praxi jako CRM (Customer Relationship Management). Snažím se nalézt důvody, které vedly ke vzniku a rozvoji CRM. Dále popisuji výhody, které plynou společnosti z udržování dlouhodobých vztahů se zákazníky a z uspokojování jejich potřeb. V tomto směru se opírám o výzkum Fredericka F. Reichhelda, který definoval čtyři důvody, proč by firmy měly investovat do budování dlouhodobých zákaznických vztahů. Patří mezi ně dodatečný zisk ze zvětšujícího se objemu nákupů, zisk plynoucí ze snížených nákladů na komunikaci se zákazníkem, zisk z šíření dobrého jména společnosti a také zisk plynoucí z ochoty dlouhodobého zákazníka zaplatit za spokojnost se společností více.
Aby firma byla schopna uspokojit přání svých klientů, musí je nejdříve poznat.
Společnosti s malým počtem zákazníků mají v tomto ohledu velkou výhodu.
Většinou znají své zákazníky osobně, znají jejich očekávání a potřeby. Společnosti s velkým počtem zákazníků však tuto výhodu nemají, a proto musí hledat jiné způsoby, jak je poznat lépe, např. pomocí dotazníků, marketingového průzkumu nebo zakládáním zákaznických klubů a věrnostních programů. Sběrem informací o zákaznících vznikají rozsáhlé databáze, jejichž hodnota pro společnost je ohromná, pokud ví, jak ji využít. Avšak databáze sama o sobě ještě nezaručuje úspěch na trhu.
Na databázi je nutné vybudovat znalost o zákaznících a tu pak chytře proměnit v zisk společnosti.
O tom, jak promítnout znalost o zákaznících do rostoucích finančních výsledků společnosti, se zabývám v druhé a třetí kapitole. Od souhrnného pojmu CRM přecházím k jedné z jeho podoblastí, a to analytickému CRM. Analytický CRM se zabývá analýzou zákaznických dat, které slouží jako podpora pro operativní a strategické rozhodování firmy. Ve své práci popisuji způsoby, jakými lze segmentovat zákazníky do skupin na základě jejich demografických charakteristik, a také zdůrazňuji rostoucí roli segmentace na základě potřeb zákazníků. Demografické znaky, jako je např. věk, příjem, velikost domácnosti, hrají při segmentaci důležitou roli, avšak jejich význam by se neměl příliš zveličovat. Například ženy ve věku 25 a 45 let mohou mít úplně stejné potřeby, zájmy a životní styl. Obě například zakládají rodinu, shání bydlení a uvažují o hypotéce. Pokud bychom použili při segmentaci pouze demografické znaky, dopustili bychom se tak velké chyby. Ženu ve věku 25 let bychom přiřadily do stejné věkové skupiny, ve které většina ještě o rodinou neuvažuje, chce cestovat, pracovat v zahraničí atd. Naopak žena ve věku 45 let by se ocitla ve skupině rodin s dětmi školního věku, které již bydlení mají a investují do vzdělání svých dětí.
Diplomová práce je od počátku doplněna příklady z praxe z různých průmyslových oborů. Snaží se zaměřit nejen na B2C, ale také B2B kontext. S ohledem na segmentaci uvádím jednoduchý příklad Marie, kadeřnice z Londýna, která chytře využila segmentace k úpravě svých cen a zvýšila tím posléze tržby a zisk kadeřnictví. Tesco UK provozující síť prodejen a obchodních domů, využilo segmentace k diverzifikaci svých promočních letáků. Různým skupinám zákazníků
jsou zasílány různé druhy letáků s různou nabídkou zboží podle jejich nákupních zvyklostí.
Ve třetí kapitole vysvětluji nejčastěji používané zákaznické metriky, jakými jsou např. frekvence, akviziční náklady nebo hodnota zákazníka, a možnosti jejich využití při hodnocení a výběru zákaznických segmentů. Zákaznické metriky se dají vhodně využít při plánování promočních akcí a kampaní. Pokud si dokážu změřit, který zákazník má největší frekvenci nákupů, největší hodnotu pro společnost a jaká byla jeho reakce na uplynulé akce, pomůže mi to výrazným způsobem zefektivnit vynakládání marketingových výdajů. Nebudu plýtvat letáky na zákazníky, kteří o to nestojí, ale naopak zaměřím se na své dobré zákazníky, kteří u mě nakupují.
Čtvrtá kapitola napomáhá k vytvoření si ucelené představy o analytickém CRM.
Zaměřuje se na jeho technickou stránku a IT podporu. Vysvětluje pojmy data mining a data analysis a poukazuje na způsoby jejich využití. Vysvětluje princip, na kterém pracují současné databáze, a zdůrazňuje nutnost kvality dat pro operativní a strategické rozhodování.
„Zákazník je náš pán“ je velmi často používaný slogan v obchodní praxi. O tom, jak jej společnosti reálně aplikují, se zabývám na závěr teoretické části své práce.
Popisuji možnosti, jakých společnost může využít při budování dlouhodobého vztahu se zákazníkem. Blíže specifikuji např. výhody a nevýhody partnerských programů, zákaznických klubů, promočních akcí atd. Dále také upozorňuji na pozvolný přechod od prvořadosti přání zákazníka k partnerství mezi zákazníkem a společností a nutnosti jejich vyváženého vztahu. Kdo by si ještě před pár lety pomyslel, že společnosti budou vyhazovat své zákazníky. Avšak pokud je zákazník ztrátový, proč do něj i nadále investovat! Jedná se stále o poněkud revoluční myšlenku, ale společnosti by se také měly bránit proti přílišnému zneužívání jejich služeb. Tak např. společnost Best Buy prodávající elektroniku ve Spojených státech amerických se rozhodla skoncovat se zákazníky, kteří nadměrně vrací zboží. Pokud zákazník překročí společností stanovenou míru na vrácení zboží za určité období, vrácení zboží mu nebude umožněno. Existuje totiž spousta zákazníků, kteří nakupují s cílem zboží po několik týdnů užívat a pak ho vrátit pro nesmyslné důvody jako je nevyhovující velikost, využití atd. Proti takovým zákazníků se společnosti musí
bránit. Je důležité si uvědomit, že se stoupající spokojeností zákazníka dochází nejen k zvyšování tržeb společnosti, ale také k růstu marginálních nákladů. Společnost se posouvá po stoupající křivce marginálních nákladů nahoru. Z tohoto důvodu se přílišná spokojenost zákazníků také nevyplácí. Pokud zákazníka uspokojíte jednou, rychle si na to zvykne a požaduje od vás víc a víc, a to se může velmi prodražit.
Poslední praktická část mé práce byla zpracována ve spolupráci se společností Makro Cash & Carry. V Makru proběhlo v uplynulých letech spousta změn, které měly jediný cíl: Proměnit společnost z produktově na zákaznicky orientovanou. Takový krok vyžaduje spoustu změn ve struktuře společnosti, informačních technologiích, interních procesech a v neposlední řadě také v myšlení zaměstnanců.
Makro začalo s přeměnou v roce 2005, jenž byl prvním rokem od vstupu na český trh, ve kterém došlo k náhlé stagnaci tržeb. Stálo před nelehkou otázkou: jak dosáhnout růstu společnosti bez pokračující expanze. Makro tehdy vsadilo na zákaznický přístup a v minulém roce se ve finančních výsledcích potvrdilo, že to byla dobrá volba. Společnost zvýšila své tržby o jednu miliardu korun a udržela se v top pěti nejlepších obchodníků na trhu i přes fakt, že vlastní pouze 12 hypermarketů. V praktické části se nejdříve snažím nastínit nejdůležitější strategické kroky, které byly v Makru podniknuty. Popisuji, jakým způsobem se odráží zákaznický přístup v organizační struktuře společnosti nebo jak Makro přistupuje ke svým dobrým, ale také neaktivním zákazníkům. Později se věnuji náplni práce kontrolorů ve společnosti. Popisuji, jak se provádí segmentace zákazníků, finanční analýzy kampaní a letáků, nebo category management.
Analytický CRM je velmi účinný nástroj, jak zvýšit konkurenceschopnost a potažmo i zisk společnosti, pokud ví, jak jej efektivně využít. Doufám, že má práce poskytne alespoň malý návod, jak toho dosáhnout.
Introduction
“We have only two sources of competitive advantage - the ability to learn more about our customers faster than the competition and the ability to turn that learning into action faster than the competition”
Jack Welsh
I could not think of better start of my diploma thesis than Jack Welsh’s quotation. It describes briefly and concisely the topic and goal which will be analyzed. Every company talks about customer satisfaction nowadays:” Customer is our King” or
“Customer has always right”. Is it just a fashion or a real commitment? There are some companies that put this commitment into practice and were very successful; on the other hand there is also a huge number of companies that failed. Everybody is asking where the problem was. Was it because the strategy was too weak or the action plan failed?
The change from seller’s to buyer’s market resulted in new and challenging tasks that companies have to perform in order to succeed in today’s highly competitive environment. Customers don’t suffer lack of information anymore. On the contrary, they can compare vast amount of products and companies in order to choose the right one for them. Customer loyalty diminished rapidly and producers have to look for new ways how to persuade customers to buy theirs products. In order to do so, companies have to understand their customers better and respond to their needs and wishes faster than the competitors. They have to learn about their customers and apply this learning into future actions.
The companies with small customer base have got a big advantage in this respect and that is the knowledge about theirs customers. They usually know them personally and know what their needs are. However, companies with large customer base have to find other ways how to get to know their customers and that is through collection of customer data. Customer database is a powerful tool if the company knows how to work with it. The thesis will try to provide some kind of framework for it. It will show different ways how to work with customer data and how to conduct customer
analysis. It will introduce reader to the topic of customer segmentation and explain it on the examples from real business environment.
As the title of the thesis claims: CRM is a good tool how to increase not only customer satisfaction, but also company’s profit. Many firms make a fundamental error when implementing Customer Relationship Management. They forgot to link customer’s improvements to company’s financial results. 100% commitment to Customer Service is definitely a nice and popular thing to proclaim, but it cost lot of money and effort of the whole organization, which should be seen with positive figures on an annual P&L statement. How to link customer satisfaction with profitability? The thesis will address some possible ways how to do it. It will speak about different ways how to keep our good customers in the company and how to growth their value over the time.
At the end of the thesis more focus will be given to the retail business; specifically retail business in the Czech Republic. Retail could be characterized by lower customer loyalty, fast moving inventory, seasonality or large amount of articles on sales. It manages huge amount of data about the customers and articles and this is what makes it very interesting for customer analysis. How CRM works in retail will be shown on the example of Makro Cash & Carry.
This thesis is organized in six main chapters. The first chapter is an introduction to CRM. It explains what it is CRM and where the need for CRM came from. It talks about changing customer needs and new trends on the consumer market. It shows the existence of three different views on CRM: strategic, operational and analytical.
Analytical CRM will be the matter of focus in the next chapters. The second one deals with the customer analysis. Firstly, it addresses the question what is customer and customer portfolio. Secondly, it deals with the process of customer segmentation based either on demographical and geographical attributes or customer needs.
The third chapter explains how to measure customer value to the company. It introduces widely used customer metrics. It speaks about acquisition rate and costs, retention rate, customer frequency and others.
The fourth chapter draws the attention to the Role of Technology in CRM. It deals with the databases and effective data mining procedures and explains the difference between data mining and data analysis. It stresses the importance of consistent and accurate customer information. In order to get a complete picture of data mining, it explains also the terms data warehousing and OLAP cube.
The fifth chapter deals with satisfaction-loyalty-profit chain. Does always customer satisfaction go hand in hand with loyalty and higher profits? This question will be asked and discussed. Afterwards, various ways how to retain our high value customers will be addressed. Finally, quite new topic in the business environment – sacking of the customers will be introduced.
The final chapter number six switches from the theory to the real business environment. This chapter was conducted in the leading retail company on the Czech market Macro Cask & Carry. It shows how the CRM, especially the analytical one, works in retail business and how does it contributes to the decision making process influencing the every day life of the stores. Apart from that, it also describes the specifics of retail industry with focus on the Czech retail environment.
1. CHAPTER
The first chapter focuses on the seismic market changes that occurred in the 80’s and 90’s of the last century and that resulted in creation of CRM (customer relationship management). It describes the development of the business strategy which is nowadays much more focusing on the customers needs rather than on a strong brand.
Also, it explains what CRM is and what levels does it consists of: strategic, operational and analytical. Finally, it describes current market trends such as demographical changes, lack of time and increasing demands of customers; all of which have got a strong impact on the business operations.
1.1 What is CRM?
CRM is defined as a practice of analyzing and utilizing marketing databases and leveraging communication technologies to determine corporate practices and methods that will maximize the lifetime value of each individual customer to the firm (Kumar, Reinartz; 2005). It is important to understand that CRM is a complete business strategy that involves the whole company not just top management or single department. The contribution and reinforcement must be done on all organization levels in order to work efficiently. CRM could be also defined as a company’s philosophy in which customer not the product is a point of focus. In this customer- centric approach company shifts the attention from brand to customer information, which is considered to be the main source of competitive advantage. Through customer information a company is able to build knowledge about its customers and their needs. The knowledge about the customers enables to individualize products and services and to treat different customers differently. CRM is about individualization and individual approach to customers. Individualization is hard to imitate by competitions thus improving competitiveness of an enterprise. One way how to achieve individualization is focusing on services rather than products.
Hewlett-Packard Co., for example, has defined “tomorrow’s sustainable business” as one in which it shift from selling disposable products to selling a range of services around fewer products.
The key to Amazon Success was not technology, but the idea to offer each customer its own virtual store. This involves more than the personal greeting that repeat customers receive when they log on to a website.
Amazon.com uses collaborative filtering, which links customers with similar tastes and purchasing histories as electronic "soul mates"-identifying and recommending products that one soul mate has purchased but the other has not. Initiatives like this have helped Amazon.com almost double its customer base every year since 1998. And once consumers have purchased goods from Amazon.com they tend to return; 80% of its customers are repeat.
Source: http://www.bain.com/loyaltyrules/library_articles_details.asp?id=10738
CRM is a relatively new field of knowledge, which started to develop as a compact theory in the 90’s of the last century. Nevertheless, the development on the world markets was gradually leading up to the need of some kind of customer-centric strategy already from the 60’s. The era before 60’s could be characterized by high standardization. The product and services were designed to meet the needs of general customer. Individual customer was unknown to the company. Mass-marketing was used as an effective marketing tool. At this time Henry Ford was celebrating success with his T- model whose manufacturing was based on the idea “Whatever color you want as long as it is black”. With this attitude Henry Ford would not attract many customers nowadays, but at that time T-model was successful almost for the one third of the century.
During the 60’s living standard started to rise gradually as a disposable income of the families was getting bigger. Demand for products and services was increasing and triggering supply at the same time. Competition was rising quickly and customer expectations were changing. Higher purchasing power enabled people to buy more, to travel and to have more free time – all of which started to shape and evoke new needs which did not exist before. Businesses were aware of this change and started to widely use various marketing tools. This was the time when the first marketing dictionary and models started to develop and growth.
However, the centre of the business focus was still a product not the customer. The widely used marketing practices in this time were based on the model of 4P’s invented in the same period. This model gives the most attention to the product, its promotion, pricing and placement. Product is developed for an unknown and average customer that might possibly want or need it. It relates to the market as whole not to the individuals and favors mass-marketing before an individual one. Despite its distance from customers, 4P’s was one of the first models that defined how the company should behave on the market and it’s widely used today together with the
customer-centric strategy. Nowadays, however, the shift has been from 4P’s to 4C’s that express better customer orientation. 4C’s stands for customer value, lower cost, better convenience and better communication.
Three main reasons can be found why CRM did not develop already before 90’s.
First, companies did not collect and carried customer data information. The available database, if any, was not sufficient for the needs of CRM. Second, information technology was undeveloped and unable to carry vast amount of data, which are needed for CRM. The capacity of former devices was inadequate to the amount of information they were supposed to store. Third, the market conditions which prevailed at that time were not suitable for closer customer approach. It is important to understand that CRM is not a desired strategy that can be pursuit everywhere. The driver that triggers CRM are customers; customers that are choosy, demanding and have got a high expectations. Building CRM without this type of customers does not make sense, because serving individual customers costs lot of money. In past customer were easy to satisfy and were not aware of their value on the market.
Therefore, product approach was the best strategy considering its benefits and costs.
Why to spent huge amount of money on individualization, when customer does not actually ask for it? This is for example the case in underdeveloped countries or former communistic countries short after the fall of an iron wall. The conditions on the market were in favor of companies, which dictated the price and product characteristics. Customers were not used to ask for something extra. In this case, product orientation appears to be the most profitable.
1.2 Why do we need CRM?
CRM developed as a reaction on the rapidly changing business environment, where customers not the companies started to rule the market. Customers became virtually a centre of the “business universe” and companies have to act accordingly if they want to survive in the highly competitive business environment. Product and strong brands do not represent competitive advantage any longer, because most of the products became already substitutable. Once, competitive advantage arising from unique formula or brand new product on the market is only temporary for most of the products and services nowadays. Continuous technological advancement and
knowledge sharing enabled competitors to react fast on the market changes thus closing the gap to the innovators. Quality which was once considered as a privilege of strong brands became a common product characteristic for which should not be paid too much extra money. Nowadays, ordinary customers are satisfied with either no name brand or trusted manufacturer’s brand that can be proved by increasing popularity of low-budget own retail brands.
This change in the business environment put naturally new requirements on the companies. If they want to win customers, they have to come up with something more than just a product, good quality and low price. Simply, they have to come up with something extra that would differentiate them from competitors and won’t be easily copied such as customer satisfaction or customer relationship.
However, satisfying customer needs is definitely not an easy thing to do and most of the business executives would tell you that it is one of the greatest challenges they have to face in the everyday business. Though, only through customer satisfaction company can built long-lasting relationships with their customers that bring benefits to both sides: higher margins and sales to companies and on the other side value and satisfaction to the customers.
Successful implementation of CRM strategy is difficult and complex task, however, not unattainable. There are plenty companies that demonstrated in past that satisfied customers are not just a dream, but reality. One of these success companies is, for example, Spanish ZARA, which focused its strategy on fast reaction on customer needs and their satisfaction.
Zara, second largest clothing retailer in the world and logistic leader in the industry, made its success on the fast replenishment of the stores. Customers can choose new designs every two weeks. At the headquarters in Spanish La Coruna, sales managers sit at a long row of computers, monitoring sales at every Zara store around the world. When a garment sells well-or flops-they quickly tell designers sitting nearby to whip up fresh designs.
Source: The Wall Street Journal; February 20, 2008.
Another example is Xerox Corp. that focused on servicing and tailored made solutions for its clients. This strategy helped Xerox to increase loyalty of its customers which led to the higher sales and profits.
Xerox move toward servicizing was part of a larger move that developed during the 1990s as its core products were becoming commoditized. In 1994, Xerox started calling itself as “Document Company”, marking a change in strategy that focused less on devices that create printed materials and more on the information that flows within a business. To drive this strategy forward, the company launched Xerox Global Services, its Paris-based consulting division, in late 2001 to help customers improve efficiencies in their document-intensive business processes. A component of Xerox Global Services is its focus on the office. To help improve the productivity of the office environment, Xerox introduced the Office Document Assessment too (ODA)l, which analyzes the total costs associated with alternative document making processes. A typical ODA report offers a range of suggestions for increasing office efficiency, improving worker productivity and reducing costs. For one of Xerox’s clients, United Health Services Hospitals of Binghamton(UHSH), New York, the opportunity to benefit from these services persuaded it to stay with Xerox, which had been providing UHSH with office equipment for more then 10 years. In 2001, UHSH was tempted by offers from Xerox’s competitors. But after Xerox completed and ODA, the hospital organization was impressed enough with the potential savings that it entered into a new partnership with the company. Source: Sustainability through servicizing; MIT Sloan Management Review; winter 2007
1.3 Trends on the consumer market with respect to CRM
The fast changes on the market in recent two decades and rising complexity of business operations made CRM an essential part of company’s every-day life. The main changes which influences business environment are: demographical changes, lack of time, rising customer demands and market changes.
1.3.1 Demographical changes
Aging of the population in the world’s richest societies (Western Europe, Japan and North America) is increasing share of older generations on the total population. It results in an increasing marketing focus on needs of mature consumers and rising importance of this group. William H. Frey, an analyst for the Brookings Institution think tank, predicts the median age in Europe will increase from 37.7 years old in 2003 to 52.3 years old by 2050. Also, ethnic diversity is rising. American society has always been very diverse, but with increasing transportation possibilities and creation of supranational bodies like the EU, the ethnic diversity is rising all over the world.
From the enlargement of the EU in 2004, it is expected that about 600,000 eastern European immigrants have arrived in the UK [W1]. Therefore, markets are becoming more segmented and enterprises have to focus on the needs of new immigrants, for example, by importing products from Eastern Europe or making bilingual versions of promotion.
Wal-Mart recently opened first demographic focused stores as a part of much broader Wal-Mart effort to jump- start sluggish sales gains by abandoning its one-size-fits-all approach to retailing. In place of cookie-cutter
stores stocked with largely the same products, the retailer is custom-fitting its merchandise assortment to reflect one of six demographic groups: African-Americans and the affluent, empty-nesters, Hispanics, suburbanites and rural residents. Wal-Mart attempts to break its approximately 3,400 U.S. stores into these six different models.
For example, the stores for Hispanic markets will have obvious differences like more varieties of tortillas. They're also getting flexible layouts to accommodate weekend "farmers' market" events offering fresh food. The retailer plans to expand store displays devoted to quinceaneras, Hispanic girls' 15th-birthday celebrations, featuring products ranging from dresses to special cakes. Source:
http://reclaimdemocracy.org/walmart/2006/customize_stores.php
1.3.2 Lack of time
As the time is becoming scare for most of the consumers, companies have to adjust to it. The way how to do it is, for example, by prolonging opening hours or by offering additional services that decreases the time consumption. Internet and telephone banking enabled consumers to save extra time by avoiding going to bank.
1.3.3 Rising customer demands
Customers are becoming more demanding and their expectations about the level of service are rising. They are also becoming less tolerant to the failures of producers.
Due to internet they can compare companies offers fast and monitor the market for available products. If they are dissatisfied with some product or service they can much easily switch to competitor than ever before. This results in decreasing customer loyalty.
1.3.4 Market changes
The competition on the market is becoming more intense as barriers to entry are decreasing. WTO treaties and creation of economic free areas are decreasing trade barriers thus simplifying entry to new markets and intensifying competition on the local markets which are becoming part of the complex world market. Markets are also becoming more segmented as the needs of customers and their differentiation is rising thus enhancing the overall market complexity.
1.4 What is customer relationship?
CRM contains a world relationship, but what does it actually mean to have a relationship with the customer? Why do companies want to build a relationship with their customers? Does it bring benefits to customers to have a relationship with a company?
Relationship in CRM can be defined as a mutual interaction between companies and customers that is based on trust and commitment and which is beneficial to both sides. The relationship begins with a company’s acquisition of new customer and continues with exploring and learning about each other which later leads to trust and commitment. Acquiring of a new customer should be viewed as acquiring of any other asset. Customer and customer relationship is an asset to the company, that brings benefits and is measurable. The value of customer equity can be measured as the total of the discounted lifetime values of all of its customers (Peppers, Rogers;
2004). First, company incurs costs from acquisition of new customers. These costs comprises of pre-sales support, marketing and advertising. After the acquisition is completed, the process of exploration and learning can begin. During this process enterprise should give a chance to customer to teach the company what he wants and what his needs are. The better the company learns customer’s needs, the better will provide and deliver them to the customer. Customer is likely to stay with the company when his/her needs are properly received rather then to change and start teaching another company from the scratch again. Termination of one relationship and initiation of a new one creates switching cost to the customer. The more satisfied the customer is, the higher switching cost will he/she incur and the less vulnerable will be to change the company for another one. Company becomes more valuable to the customer that allows it at the end to increase its margin, to sell new services and products to the existing customers; simply to increase the value of each individual customer, which will be willing to pay extra money for convenience and satisfaction. And this is exactly the concept of competitive advantage in CRM.
Enterprises cannot prevent competitors from offering the same product and services to the customers, but through customer satisfaction and strong customer relationship built on trust and commitment can prevent customers from switching to the competitors.
However, many relationships end already in the early stage of learning and exploring. For the company it means that it has to invest into acquiring and building of a new relationship. The costs to acquire a new customer are often considered to be five times higher than the costs to retain an existing one. Therefore, it is advisable for the company to concentrate on the retention of customers rather than on replacement of existing ones or acquisition of new ones. The length of the relationship is also an
important factor which determines the profitability of the company. Usually, the longer an enterprise retains customers, the more money it can make on them and the more profitable they become. Frederick F. Reichheld who made several researches about customer loyalty and retention stresses out the importance of long term customer relationship because of these reasons:
1. Profit derived from increased purchases. The more satisfied the customer is, the more likely is to realize more purchases with a company.
2. Profit from reduced operating costs. As customer becomes more experienced, he/she makes fewer demands on the supplier and fewer mistakes in the ordering process, thus contributing to greater productivity to the company.
3. Profit from referrals to other customers. Less needs to be spent on advertising and promotion due to word-of-mouth recommendations from satisfied customers.
4. Profit from price premium. Long-term customers are likely to pay extra for their satisfaction, while new customers are looking for introductory promotional discounts when seeking a supplier.
Following table [T1] shows how profits increases over the time customer stays with one company. The study was done across four different industries, though delivering
the same result:
Table 1: Customer sales over 5 year - industrial comparison
Industry Year 1 Year 2 Year 3 Year 4 Year 5
Credit Card $30 $42 $44 $49 $55 Industrial Laundry $144 $166 $192 $222 $256 Industrial Distribution $45 $99 $123 $144 $168 Auto Servicing $25 $35 $70 $88 $88 Source: (Peppers, Rogers; 2004)
Nevertheless, it would be wrong to think that all customers are profitable in the long run. Let’s take an example from a banking sector. Low-income customer that usually keeps his account about zero, don’t save or use bank services such as insurance, investing and living services and at the same time exploit customer service at banks and call centers won’t be attractive for the bank. Such a customer will represent a burden more than an asset and it is better to let him go. But how does the company find which customer is better to walk out and which should be kept? That depends on
the company’s ability to manage customer information. Data that company collects about their customers should be able to reveal which customers are profitable and which not. More about the data attributes and customer database is written in the Chapter 4.
1.5 Different levels of CRM
CRM consists of 3 different levels:
• Strategic
• Operational
• Analytical
1.5.1 Strategic CRM
Strategic CRM is concerned with building of customer-centric organization.
Customer centric organization recognizes that customers are heterogeneous in needs and value to the firm and that a customer orientation reflects a readiness to treat different customers differently (Kumar, Reinartz; 2005). The successful implementation should start from the top-management. Why? Top management possesses the power to impose and execute the control over CRM implementation.
What has to be present on the side of top management is a commitment to customers- centric organization. Lack of commitment is one of the main reasons why CRM fails.
As the first step top management should define organizational values, beliefs and goals with respect to CRM. Consequently, it is necessary to do appropriate changes in organization structure, so that the enterprise became closer to its customers. Next step is to build an appropriate reward system, where rewards will be connected to the customer satisfaction. Of course, many executives would argue that customer satisfaction is very hard to capture and measure; however, it is not an unachievable job. On the other hand, if company claims to be customer oriented, this is an example how to prove it in reality. To do so, company has to identify factors that influence customer satisfaction and to define variables that would reflect them. Further step is to connect the measurements with rewards of carefully selected departments and employees. It is not viable to connect customer satisfaction with departments that can hardly influence these factors. Connecting customer satisfaction with rewards is, for
example, common practice in health care sector. An example below shows how a utility company adopted this policy.
California Public Utilities Commission adopted a set of performance indicators aimed at insuring high levels of customer service provided by Southern California Gas Company (SCG). Two of the four indicators are based on customer satisfaction data obtained through the third party administered survey, and others are operational indicators based on data obtained from SCG’s operating statistics. Phone/office satisfaction and Field Visit Satisfaction are based on customer satisfaction surveys of a sampling of approximately 30 000 customers who have received service from SCG. Field service orders appointments scheduled vs. made and call center responsiveness are measured internally. For the value of indicators there are targets, deadpans, and reward and penalty structure identified.
Source:http://www.socalgas.com/regulatory/grc/docs/29_Petersilia_perf_incentives.pdf
The implementation of CRM is not a responsibility of one or two departments, but the entire organization must be involved in it. Therefore, top management would not be successful without appropriate coordination, integration and alignment of organizational processes. Customer as the target should be present in all processes and minds of employees. It is wrong to think that only front office which has got a direct contact with customers is also fully responsible for them. Front office should be supported by the back office that provides various analysis such as which customers are the most profitable and to which customers should front office devote the most of its time. Strategic CRM is also sometimes wrongly associated with software installation. However, CRM is not only about software installation, it is about reengineering of entire organization.
1.5.2 Operational CRM
Operational CRM involves marketing, sales force and service automation through use of various software applications. These software applications were one of the first to be used in place. Marketing automation offers several functions: customer segmentation, campaign management and event based marketing. Customer segmentation function enables to develop targeted communication up to the level of individual customer. Campaign management is capable to project, budget and execute communication campaigns. Event-based marketing triggers company action which reacts on customer inquires. For example, customer call questing the new function of internet account might result in offering this function to a customer on the basis of customer histories and records. Sales automation enables various function ranging from contact management, pricing of customized offers based on customers profitability to sales forecasting. Service automation covers automation of
call centers or web sites. Service automation uses technologies such as Interactive Voice Response (IVR) that enables customers to communicate with automatic voice machine or Call-routing software that connects incoming calls to the most suitable handler.
1.5.3 Analytical CRM
Analytical CRM is the analysis of customer data for the purpose of managing business performance. Through the analysis of sales, financial, markets and other kind of data analytical CRM should be able to give an answer on questions such as:
Who are our most frequent customers? Which customers are likely to switch to the competitors soon? Which customers to target with special offers? Analytical CRM support the whole organization starting from the front desk service clerks to management board. The findings from analytical CRM provide basis for decisions across the entire organization.
In following chapters this thesis will focus on Analytical CRM as a part of total CRM. In reality, company has to focus on all three levels in order to set up a functioning CRM.
Figure 1: Operational CRM
Marketing automation
•customer segmentation
•campaign management
• event-based marketing
Sales-force automation
• contact management
• price proposal
• sales forecasting
Service automation
•call-centers
• web sites
Operational
CRM
Marketing automation
•customer segmentation
•campaign management
• event-based marketing
Sales-force automation
• contact management
• price proposal
• sales forecasting
Service automation
•call-centers
• web sites
Operational
CRM
Marketing automation
•customer segmentation
•campaign management
• event-based marketing
Sales-force automation
• contact management
• price proposal
• sales forecasting
Service automation
•call-centers
• web sites
Operational
CRM
2. CHAPTER
This chapter will start with the real customer analysis. The term CRM was already explained and now is the time to leave theory and start with CRM tasks that can be encountered in everyday business. To understand CRM process it is necessary to start from the beginning and that is customer portfolio. Later, the process of market segmentation will be explained and demonstrated on examples. Finally, various methods for assessing value of customer segments will be put forward.
2.1 What is a customer and customer portfolio?
Customer can be either an end consumer of the product or service or a company from the view of its suppliers. The longer the production chain is, the more levels of customers we have. There are two terms which are widely used to describe the customer relationship: B2C (business-to-consumer) and B2B (business-to-business).
The term B2C is used to describe the relationship between company and end consumer and the term B2B is used in the relationship between two companies.
These are basic that most people already know. However, it is important to understand that this split is very important for further customer analysis. Different types of market segmentation and strategies are used for B2B and B2C relationships.
Customer portfolio consists of different customer segments that have similar needs other attributes. Grouping customers into customer segments is based on the idea that different customers have different needs; therefore have to be treated differently.
Clearly, every customer is different and deserves to be treated differently, but that would be too costly for most of the companies. Finding similar needs and patterns among customers is a very good way how to manage large customer base. Once customer segments are created, each of them is offered a tailor-made solution.
Existence of customer segments is a backbone of customer-centric strategy.
In reality, creation of customer segments requires great amount of work. The biggest problem that managers encounter is the complexity of customer needs which are determined by different beliefs, religion, life style, job and ambitions, and so forth.
Also, the wider is the production channel, the harder is to get to know the customers
and their needs. The manufacturer of clothes who sell to retailers will have limited access to the information than he would have if having his own stores. In this case he can get necessary information by his own market research, by collaboration with retailer or from the market research company.
2.2 Market segmentation
Creation of market portfolio starts with market segmentation. Market segmentation is the process of dividing up a market into more-or-less homogeneous subsets for which it is possible to create a different value proposition(Buttle; 2004).Based on the customer value that each segment has and on the capabilities to satisfy the needs of customers in this particular segment, company decides which one to serve and which should be left out. Market segmentation could be highly intuitive and based on the experience of managers or it could be data based. CRM prefers the data basis.
Again, it is important to stress that market segmentation involves the whole organization not just marketing department as it might seem at the first sight. For example, R&D which take place already before the value to customer is created, plays an essential role in market segmentation. R&D must be able to create various variations of products in order to satisfy specific customer groups.
The market segmentation process can be broken down into a number of steps (Buttle;
2004):
1. identify relevant segmentation variables 2. analyze the market using these variables 3. assess the value of the market segments 4. select the target markets to serve
2.2.1 Identify relevant segmentation variables and analyze the market
Markets can be segmented according to the shared consumer’s characteristics.
Consumers can be grouped according to the demographical or geographical attributes or according to the customer needs.
In B2C context:
Demographic attributes: age, gender, occupation, education, marital status, household income, size of a family, religion, nationality.
Geographical attributes: country, region, city, city size, neighborhood.
Benefits/needs: lifestyle, price, quality, service.
In B2B context:
Field of business and company specifics: automobile, health care, financial, food, size (large, middle, small), private, public
Geographical attributes: country, region Benefits/needs: price, quality, service
Demographical and geographical attributes were the first ones to be used in market segmentation. Examples of widely used methods of demographical and geographical attributes are JICNARS and ACCORN. JICNARS is social grading system. This allocates households to one of six categories (A, B, C1, C2, D and E) depending on the job of the head of household (Buttle; 2004). The higher managerial occupation one has, the higher ranking gets. ACORN is neighborhood segmentation analysis which allocates homes into one of the 9 categories and subcategories [W2]: Affluent Families, Upscale Households, Up & Coming Singles, Retirement Styles, Young Mobile Adults, City Dwellers, Factory & Farm Communities, Downtown Residents and Nonresidential Neighborhoods. Later, each group is divided into subgroups according to lifestyle, behaviors and buying patterns. For example Retirement Styles can be further divided into 6 categories [W2]: Retirement Communities, Active Senior Singles, Prosperous Older Couples, Wealthiest Seniors, Rural Resort Dwellers, and Senior Sun Seekers.
The constraint of demographical and geographical attributes is that they often do not reflect needs, beliefs, values and lifestyles of our customers. When using customer needs for market segmentation, we ask ourselves what motivates customers towards purchase, rather then what attributes they have in common. Demographical attributes often correlate with consumers needs, but it is not always the case. For example, we can expect that women and men in pension over the age of 65 will have similar needs. However, this is just a rough approximation and there is too much variance within this group. When we go deeper we find out that there are subgroups quite different from each other. One subgroup consists of people who are still very active, do some sports and spent their holidays actively. Another group does not enjoy such a good health as the first one and prefers to relax and spend holidays in spa.
Therefore, combination of geographical and demographical attributes with customer
needs seems to be the most accurate approach. For example, women skin products can be segmented according to age and type of skin and benefits such as first wrinkles and mature skin.
Needs-based segmentation is based on the idea that customer buys product because of its benefits. Customer will choose product that deliver specific value and satisfy his/her needs. Let’s take toothpaste for example. The benefit that customers expect from the usage of toothpaste can be various: tasty flavor, white teeth, decay prevention, healthy gum or simply price. Clothing Company that produces clothing for sport and leisure time can segment its market in a following way: professional quality, occasional sport activities, daily active look or comfortable travel. In real business environment cluster can look like that of Dell or Tesco.
Segmentation in Dell: Dell profited a lot from segmenting it’s customers into groups. The reason was to provide unique value-added solution to each of them that matches their requirements. In 1994, Dell was a $3.5 billion company when it was focused on two types of customers – Large Customers and Small Customers (Business and Consumers). In 1996, it became a $7.8 billion company when they further refined their large customers into large companies, midsize companies and Government and education segments. In 1997, it became a $12 billion company when they further refined large company segment into global enterprise accounts and large companies, and government and education into federal, state and local and education segments. This segmentation has helped them truly understand their customers’ demands and cater them accordingly.
Source: cs.nyu.edu/~aal270/DELL CORPORATION.doc
Mailings in Tesco are tailored to the needs, interests, and potential interests of Club Card members. Customers are segmented into less affluent, mid-market, and up-market segments, which are in turn segmented into health, finer food, convenient, traditional, main stream, price sensitive. These sub segments are then segmented further and communications are tailored to each.
http://www.coriolisresearch.com/pdfs/coriolis_tesco_study_in_excellence.pdf
Figure 2: Segmentation of toothpaste market
tasty flavor white teeth 10%
30%
decay prevention
30%
healthy gum
10% price
20%
Companies that deliver products directly to the consumers have got a big advantage in the recognition of customer needs which is the direct link with the end users.
P&G, for example, is known for following consumers around stores and observing them (Harvard Business Review; March 2008). How will such business to business company find what consumers really want and need? In this case, professional marketing research company is usually needed. Through extensive research such as detailed interview with consumers, questioners and observations, it is possible to answer this question. Thomson, information service company, developed its winning market strategy on the needs of end users despite the fact that it serves to B2B.
Like most of B2B companies, Thomson historically had a much better understanding of its buyers than its end users. The transformation of Thomson began a little over a decade ago, when the concerns about the long-term viability of its business portfolio started to appear. The real breakthrough came in 2001, when they realized they needed to focus more closely on customers than ever before. Instead of traditional market segmentation based on three broad categories: firms on the buy side (those investing in company stock), firms on the sell side (those selling company stock), and corporate clients (those issuing stock). After extensive market research, Thomson segmented its customers into Institutional equity advisers, Fixed-income advisers, Retail advisers, Investment bankers, Portfolio risk managers, Investment managers, Corporate users and Back-office users based on their information needs. Thomson realized that has to become less diversified and more focus on the segments with the best future prospects. While company has had approximately the same amount of revenue in 2007 as it did 10 year ago, the productivity of that revenue is higher and a dollar of revenue now yields approximately twice the operating profit it did back then. When its proposed acquisition of Reuters will be approved by regulators, Thomson will become the largest information company in the world. Source: Transform strategy one customer at a time; Harvard Business Review; March 2008.
Markets are often segmented according to three variables. Fitness products can be segmented according to benefit, frequency of usage and affinity to sport.
Segmentation of fitness centre customers can be done in following way.
Figure 3: Customer segmentation in Fitness Centrum
Interesting measure used in market segmentation is volume consumed and share of category spent. Companies often segment their customers according to the volume of business they make. Surprisingly, Pareto rule 20:80 often applies. The result for many companies is that 20% of customers actually make 80% of total sales. In this case, company must not loose these customers. Amount of sales can be connected to the margin contribution that customer creates. Again, here we can arrive at very contradictory results – customers that make the highest sales do not have to be the most profitable ones.
McDonald’s USA found that 77% of their sales are to males aged 18-34 who eat at McDonald’s three to five times per week, despite the company’s mission to be the world’s favorite family restaurant.
Source: (Buttle; 2004)
Tesco found, while looking at its customer base for a typical retail outlet, that the top 100 customers were worth the same as the bottom 4,000. It also found that the bottom 25% of customers represented only 2% of sales, and that the top 5% of customers were responsible for 20% of sales.
Source: http://www.brandingasia.com/cases/tesco.htm
Share of wallet measures what part of total customer spending on particular product belongs to analyzed company and what part to competitors. Customers with low share of wallet represent an opportunity to increase this share. On the other hand, customers with high wallet share represent an opportunity for cross selling.
2.2.2 Assess the value of the market segments and select the target markets to serve
There are numerous tools that already exist on the market which can be used for customer portfolio analysis (CPA). One of them is BCG matrix used in B2B relationship. BCG matrix was originally invented to analyze product portfolio. In CPA we can use analysis of our customer’s product portfolio in order to access his current business health and possible future potential or risk. BCG matrix is 2x2 matrix which compares market growth with relative market share (market share of an enterprise relative to the largest competitor on the market). Market growth represents market attractiveness whereas relative market share is a measure of competitive advantage which shows where the brand stands against its main competitor. Cash cows are products that have high market share, generate money and should be
“milked”. These products are usually long time on the market, but still attract customers and have high market share. Good example of a cash cow is Happy Meal in McDonalds. Cash Cows usually support Question marks which need money for
the fast expansion. The goal of every enterprise is to convert question marks into stars otherwise they could fall into dogs when their growth diminishes. Question marks are usually newly introduced products whose future cash flows and success is uncertain and need investments into growth. Example of a question mark could be Vista made by Microsoft. Stars, according to their name, are shining on the market and in reality they do like an iPod made by Apple. Enterprise tries to convert starts into cash cows when the market is already saturated. As for the dogs, it is better to get rid of them. They don’t growth and don’t bring cash.
Figure 4: BCG matrix
Source:http://www.valuebasedmanagement.net/methods_bcgmatrix.html
Company can use BCG to access product portfolio of its client thus his future cash flows, product strength and credibility. If the company has some cash cows, stars and few question marks in portfolio it is a good sign about the future development.
Customer that is financial healthy with growth potential is a good catch for the company. On the other hand, dogs signify possible future problems.
Another method which can be applied to B2C customer relationship is McKinsey/General Electric customer portfolio matrix. McKinsey matrix is 3x3 matrix that improves the shortcomings of BCG matrix. The shortcomings are often seen in usage of metrics market share and market growth. McKinsey replaces market growth with market attractiveness which encompasses not only market growth, but also other important market characteristics that should not be left out of the analysis such as size of the segment, pricing trends, segment growth rate, barriers to entry and exit, relationship with suppliers, competition, substitute products, potential for differentiation and demand variability. Market share is replaced with company competencies that express if the company can satisfy market requirements with
