What is customer relationship management?
Customer relationship management (CRM) means treating customers as people you want to keep for years, not as one-time buyers. Winning a new customer costs much more than keeping an old one, so firms work at relationships.
Digital tools help: websites, apps, email, chat and social media let a firm talk with each customer and learn what they like.
Customer experience management
The customer experience is how a customer feels about all their contacts with a firm. Every contact is a touchpoint: finding the website, entering the shop, receiving the parcel, calling the help desk.
- Map the touchpoints from first look to after-sale help.
- Ask for feedback (stars, short surveys).
- Fix the weakest touchpoint first, because one bad step can spoil the rest.
Loyalty factors and programmes
Loyalty means a customer chooses the same firm again and again. What builds it: a fair price, good quality, friendly service, trust and easy ways to buy. Satisfaction alone is not enough; loyal customers also recommend the firm.
A loyalty programme adds a reason to return: points, stamps, member discounts, free delivery, early access. Good programmes are simple, rewards are reachable, and the firm still earns a profit.
Customer lifetime value (CLV)
Customer lifetime value is the total profit a customer brings over all the years they buy. A simple form is:
CLV = yearly spend × number of years × profit margin
Example: spend 200 a year, stays 5 years, margin 30%. CLV = 200 × 5 × 0.30 = 300. If winning the customer cost 100, the net gain is 200. The firm can now decide how much it may spend to win or keep such customers.
CRM tools, influencers and community management
CRM tools
CRM software stores a record for each customer: contact data, purchases, complaints, messages. It helps with segmenting customers into groups, sending targeted offers (a birthday discount), and tracking what works. It must follow the data-protection rules of the country.
Influencer marketing
An influencer is someone with a following who is trusted by their audience. A firm may pay or give products for a post. It works best when the influencer fits the brand and says honestly that it is an ad.
Community management
A community manager runs the brand's social pages: answers questions, thanks fans, shares content and handles complaints in the open. The result is a group of people who feel they belong to the brand.
Try it: your own loyalty card
Pick a small shop near you. Design a loyalty card on paper: how many stamps, what reward, how long it lasts. Work out the cost of the reward and how much a customer must spend to earn it. Ask two friends if they would use it. In the 3D, the last step lets you test CLV with sliders.
Key formulas and definitions
- CLV = yearly spend × number of years × profit margin
- Net value of a customer = CLV − cost of winning the customer
- Retention rate = customers kept ÷ customers at start × 100
- Touchpoint: any contact between customer and firm
Worked examples
1. A customer spends 300 a year for 4 years. The margin is 20%. Find the CLV.
CLV = 300 × 4 × 0.20 = 240.
2. In the example above it cost 90 to win the customer. What is the net value?
240 − 90 = 150 gain.
3. A shop starts the year with 200 customers and keeps 170. Find the retention rate.
170 ÷ 200 × 100 = 85%.
4. A café gives a free coffee after 8 stamps. Each coffee costs the café 40 to make and sells for 100. If a customer buys 8 coffees, does the café still make a profit?
8 paid coffees bring 8 × 100 = 800. Making 8 paid plus 1 free = 9 coffees costs 9 × 40 = 360. Profit = 800 − 360 = 440. The programme still pays.
Common mistakes
- Using sales instead of profit (margin) in CLV.
- Thinking loyalty is the same as satisfaction. A satisfied customer may still switch for a small discount.
- Looking only at the shop and forgetting other touchpoints such as delivery and help desk.
- Collecting customer data without telling people why or protecting it.