Customer Card as a Tool for CRM in the German Textile Industry

Inhalt

List of Figures

List of Tables

List of Abbreviations

1. Introduction
1.1. Problem definition
1.2. Aim and research objectives
1.3. Structure of thesis

2. Customer Relationship Management
2.1. Theoretical background
2.1.1. Definition of CRM
2.1.2. Types of bonds
2.1.3. Operative and analytic CRM
2.1.4. Customer satisfaction, trust, and commitment
2.1.5. Customer loyalty
2.2. Customer Life Cycle
2.3. Opportunities and risks
2.4. Instruments

3. Customer card
3.1. Theoretical background
3.2. History and development
3.3. Types and categorization
3.3.1. Open and closed systems
3.3.2. Stand-alone versus multi-partner-card
3.4. Functions
3.5. Objectives

4. CRM in the German Textile Industry
4.1. Market structure
4.2. Breuninger, P&C, H&M.
4.2.1. Breuninger
4.2.2. Breuninger Card
4.2.3. Peek & Cloppenburg
4.2.4. Peek & Cloppenburg Card
4.2.5. Hennes & Mauritz
4.2.6. H&M Club
4.2.7. Comparison of programs
4.3. Additional loyalty tools in the German textile industry..
4.4. Controlling..
4.4.1. Costs using a customer card program
4.4.2. Returns using a customer card program
4.5. Regulatory framework

5. Opportunities and risks of customer cards
5.1. Opportunities
5.1.1. Card design, incentive structure, and service
5.1.2. Customer view of advantages and use of customer cards
5.1.3. Data evaluation
5.1.4. Securing staff support
5.1.5. Integration into corporate strategy
5.2. Risks

6. Diversification
6.1. Economic diversification
6.2. Social diversification
6.3. Technical diversification

7. Conclusion

Bibliography

Internet Sources

List of Figures

Figure 1: Types of bonds

Figure 2: Customer Life Cycle

Figure 3: Was muss ein Bonusprogramm bieten

Figure 4: Welche Bonuskarte nutzen Sie regelmäßig .

Figure 5: Umsatz der deutschen Bekleidungsindustrie bis 2014

Figure 6: Umsatzverteilung im Bekleidungsmarkt in Deutschland

Figure 7: Treuebonus Peek & Cloppenburg

Figure 8: Umsatz der führenden Unternehmen im deutschen Textilhandel ...

Figure 9: Angebote für H&M Clubmitglieder

List of Tables

Table 1: Main reasons to switch to a competitor

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

According to history Henry Ford mentioned with the introduction of the “Modell T” in 1908 that every customer could choose the colour of the car by himself as long as the chosen colour was black. He did that because black was easy to work with. Because of the non-existing competition during this time, companies did not have to operate towards consumer needs and were able to focus on the goods they produced.

Mass marketing was developed to reach out for as many customers as possible to sell the maximum amount of goods. In the late 1960s the quality of products became similar which changed the competitive situation. Companies were forced to differentiate from each other by creating customer benefits. Because of the rising variety, consumers started asking for products fitting their needs. New technology led to machines that were able to produce different types of products and mass customizing was born. To be able to individualize a product, a lot of information concerning the customer, needs to be collected. This process is called customer integration. Mass customizing has a one way communication from consumer to company. To create a dialog relationship, marketing was developed. The aim was to build a long-term relationship between company and customer, so that both sides generate a benefit. A rising profitability and a longer business relation were responsible for higher profits. Research led to the result that it is about seven times cheaper to keep a customer than generating new ones. According to further results, an increase of 5% in customer relationship can enable a profit increase between 20% and 120% by cross- and up-selling actions. Customer Relationship Management (CRM) describes this relationship process between a company and its customers. During the time of the relationship, customers are supposed to be bound to the company for as long as possible, so that they will not migrate to a competitor.¹

Different CRM-tools have been developed to achieve that goal. A common one is the customer card program. In Germany there are approximately up to 200 million customer cards in use at the moment.²

This chapter is an introduction to this thesis which analyses the topic customer card in the context of CRM but with specific reference to the German Textile Industry. The focus of this chapter is to present the problem definition of this thesis. In addition, the objectives and structure of this thesis are outlined in this chapter.

1.1. Problem definition

The mass of customer cards leads to the question, whether or not the market is saturated. This thesis tries to answer if customer cards are still an effective tool in CRM especially in the German Textile Industry. Because of the large variety of customer card programs in the German Textile Industry, it is difficult for the companies to stand out with their program compared to the competitors. For customers it is hard to choose which program to join, because all of them offer similar benefits. Besides, technology is moving forward which demands the classic customer card to be developed further into a digital tool with Omni channel possibilities.

1.2. Aim and research objectives

The aim of this thesis is to achieve an explicit understanding of CRM with a specific focus on customer satisfaction, trust and commitment. This document tries to answer if customer cards are still useful and what needs to be done to keep this tool successful. This thesis will attempt to describe different types of customer cards and to show up the variety of programs linked to the cards. Specifically, the thesis will provide answers to the following questions:

What does the market for customer card programs look like in the German Textile Industry?

What are the differences between the competitive card programs?

What are the opportunities and risks running a card program and what are the costs that come with a program?

Why is the “Silver Generation” an interesting target group for a customer card program?

What does the future of customer card programs look like and what needs to be done to stay on the market?

1.3. Structure of thesis

This thesis is structured around seven chapters. The first chapter provides an introduction including the problem definition and key objectives of this thesis.

Chapter two addresses the history, theories and concepts of CRM with a focus on customer loyalty and customer needs. Customer satisfaction, trust, and commitment are also discussed in this chapter. Besides it gives an overview of the Customer Life Cycle and the different tools used for CRM.

Chapter three presents the customer card itself. It describes the theoretical background and how the customer card made it to the German market. The difference between open and closed systems gets discussed as well as the main characteristics of a customer card program. At the end of this chapter the objectives are clustered and described.

Chapter four gives an overview of the German Textile Industry. The customer card programs by Breuninger, Peek & Cloppenburg, and H&M are described and compared with each other. With a view to the controlling of a customer card program, this chapter also lists costs and returns that a company has to face when they offer this tool.

Chapter five examines opportunities and risks of customer card programs. In this context the whole framework from the design, incentive structure, and service is mentioned. Data mining and the integration into corporate structure are issued in this chapter as well. At the end this chapter gives an overview about risks a company has to calculate with by running a card program.

Chapter six pictures the commercial, social, and technical diversifications of customer card programs. This chapter can be seen as a future trend, showing off possibilities and technical development that might influence today’s customer card programs.

The last chapter is the conclusion of this thesis which includes an overview of answers and findings of this thesis.

2. Customer Relationship Management

2.1. Theoretical background

After World War II the demand on the markets was high which caused a product- oriented activity by companies. Mass production was the key to success. The Ansoff matrix and the portfolio analysis were common use in the 1950s.³ According to Adrian Payne, the fundamentals of today’s marketing theories, like the marketing mix, were developed during this time. Product, price, place and promotion were defined; being the four mechanisms that influence the company’s success, if they were used the proper way.

In the following years markets stopped growing as fast as they did before, which increased pressure on corporate profitability. In addition consumers and customers became more demanding and less responsive to the typical marketing tools such as common advertising. Globalization and technological development were also major impacts which caused changes in consumer behaviour.⁴

In the 1970s the market changed from a sellers’ to a buyers’ market and companies started to recognize the importance of market-orientation to get to the consumers and their needs. Market research and segmentation started to become popular. Similar marketing activities and performance made it more difficult to be successful. Competitive orientation required a new way of thinking. Therefore the strategic triangle (customer, competitor, company) was developed based on Porters’ ideas.⁵

Philip Kotler developed a new view of organizational performance and success based on relationship in the early 1990s. He specified the importance of strong bonds towards companies and stakeholders, including customers.⁶

Relationship orientation was the new focus after the turn of the millennium. That orientation was based on the structure, the increase and the recovery of the relationship towards the customers.

Today globalization and the increasing importance of information and communication technologies create a situation which can be defined as hyper-competition. That leads to a network orientation in which cooperation and joint venture becomes highly important to the success of a company.⁷

2.1.1. Definition of CRM

According to Hippner, Customer Relationship Management contains the development and the stabilization of long-term profitable customer relationship by a balanced and individual concept of marketing, sales and services using modern information and communication technologies.⁸ Today’s marketing does not focus on the product anymore, rather on the customer. Especially customer needs and buying motives are significant aspects to that decision. The value of a customer is determined with the help of a customer lifetime value (CLV) (acquisition, care and selection).⁹ Different tools, for example customer clubs, customer cards and special sale events try to create an emotional and rational commitment towards a company. The value of a customer can be measured by his sales, marginal return and analysis of profit. As a result a company gains more profit investing in existing customers, than spending money on customer acquisition. Literature estimates that it is five times more expensive to gain a new customer than keeping an existing one.¹⁰ This perception is the reason why CRM became more important to companies during the last years.¹¹

2.1.2. Types of bonds

There are four methods to create a successful bond between customer and company:

- Emotional bond: This is the centre of action because it results from a voluntary decision. Because of his positive experience the customer decides to purchase again. Loyalty is the driving force in this process. This emotion will lead to a long-term relationship and the customer will rebuy and recommend the company to other consumers. Besides, customers with a strong loyalty become resistant to incentives of competitors and will also accept price increases.¹²

- Technical-functional bond: A functional context between core- and additional service leads to the technical-functional bond. In this case the customer is forced to use the same provider for both services even if they don’t need to be done at the same time.
- Economical bond: Switching costs appear too high so the customer stays with the company. Those costs result from information- and initiating costs combined with financial and social risks and temporal expenditure.
- Contractual bond: A bond by law can result from service- or leasing contracts. Other contractual bonds can be guaranties, subscriptions or minimum order agreements.¹³

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Types of bonds, according to Bruhn (2012), p. 106.

2.1.3. Operative and analytic CRM

CRM can be divided into two clusters – analytic and operative CRM (aCRM/ oCRM). The operative side contains the direct contact to the customer like in marketing, distribution and service. It controls and supports the communication between company and customer. An operative customer data base is needed in this process. Content management systems create a user-optimized surface to make the handling of the data easier. Those systems support the processes by integrating information like graphics or videos into the data base. The main focus is to document customer contacts in a chronological order to provide Campaign Management (CM) with the needed information. Those results can be used by CM to contact the right customer with the best offer using the appropriate wording and the best channel at the right time.

The aCRM records the customers’ behaviour and information to optimize business process. Tools like Customer Data Warehouse are used to collect this data. The process of evaluating the data and trying to get the best information by selecting and comparing these data records is called data mining. Doing that, CRM turns into a system that is able to learn and improve itself by getting more information.¹⁴

2.1.4. Customer satisfaction, trust, and commitment

According to Anderson, customer satisfaction has become an important factor for most companies. In the last decades companies spent a lot of money and resources measuring and improving customer satisfaction. By today it is proven that satisfied customers will keep a company running. It also approves loyalty which leads to a higher profit.¹⁵ It is defined to be a standard cycle. Customers rate their satisfaction by the level of fulfilment towards their expectations. Following the (Dis-)Confirmation-Paradigm, satisfaction is given whenever expectations are fulfilled or even overachieved. The complexity of customer satisfaction causes a further development of the paradigm to a dynamic point of view which includes the level of relationship, because a high customer satisfaction does not automatically lead to a longer relationship towards a company. But dissatisfaction and missing attention will make the customer to abort the relationship.¹⁶

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Main reasons to switch to a competitor, according to Hartmann, Kreutzer, Kuhfuß (2004), p. 11.

Another side-effect takes place on the inside of a company. Satisfied customers are a signal for growth and health of a company which makes it more attractive for employees because they figure to have better promotion prospects. This way a company has the chance to recruit high potential employees who can make the company more successful and human capital performance will increase.¹⁷

Trust or commitment means the customers’ willingness to believe in a company and its actions without checking them. It is an ongoing process which is built by satisfaction and quality of service.¹⁸ In the past years companies tried to reach out for customers by focusing on their product presenting their Unique Selling Proposition (USP). Since trust became more and more important companies changed their approach from “Take the money and run” to “Make the customer happy”.¹⁹ According to literature trust is very important when it comes to modified rebuys in differentiation to straight rebuys. The uncertainty rises with every buying transaction and modification in the object of purchase.

Another psychological dimension is commitment between customers and companies. Commitment describes the strong belief of a customer in the relationship towards a certain company. This relationship has a high importance to the customer. It does not focus on a special service but on the relationship itself. If the customer rates the relationship being good, it will lead to a higher commitment. A higher commitment will intensify the tie towards the firm which will cause an essential alternating barrier. Basically there are three different dimensions of commitment: The level of emotional connectivity is called affective commitment. The customers will to continue the relationship designates the continuation of commitment, and duty commitment describes an enforced commitment. Especially the second dimension, the continuation of commitment has a high impact on CRM.²⁰

2.1.5. Customer loyalty

Customer loyalty is a construct made of two dimensions - loyal behaviour and loyal attitude.²¹ It is hard to define the effect between customer satisfaction, customer commitment and customer loyalty. But many empirical studies have proven that there is a positive correlation. Commitment and loyalty get mixed up in literature sometimes and are often used to describe situations of rebuy, cross-buying and recommendation. Following the cause-effect-principle a high customer satisfaction is needed to create customer loyalty which leads to customer commitment. It is a bond of trust which reduces the customer decision to switch to another company. Social, psychological and behaviour-related barriers can strengthen customer loyalty. A loyal customer will also recommend the company’s products to other customers. To companies it is very important to recognize reference customers. They have the ability to activate additional customers.²² In this case, there is no need for a company to develop further marketing and sales strategies. Those reference customers are often called opinion leaders. They use their social network to spread their opinion towards products and they influence buying decisions of other potential customers. Customer loyalty leads to an increase of the relationship between customer and company. As a result, sales and profit will rise which leads to a higher profitability.²³

According to Eggert, there is a second approach that differentiates between connectedness and ligation. This model describes two different ways of bonding – emotional and forced bonds. Connectedness defines the voluntary and positive bond and ligation stands for a bond based on a contract for example. Connectedness leads to an emotional behaviour which can be described as customer loyalty whereas ligation leads to an intentional behaviour restricted by rational and limited possibilities such as barriers. As soon as those barriers disappear, the customer will migrate to competitors. From a company’s perspective a combination of those two bonds will lead to the most profitable result, because the customer has an emotional connection which is why he will not recognize bonds by contracts being disturbing. Doing that, customers can be linked to a company for a long time. Those customers will also develop a higher tolerance threshold to differences in quality and service.²⁴

2.2. Customer Life Cycle

CRM is a dynamic process because customers’ interest and behaviour change while they grow up and get older. The most popular cycle in marketing is the product life cycle with its four stages: Introduction, growth, maturity and decline. Because of the development from a product-orientated marketing towards a customer-orientated marketing this concept got adapted onto customers. To show the development of customer relationship the cycle can be differentiated into three kinds:

- Customer Lifetime Cycle – Customer needs depend on his age and the stage the customer is at.
- Customer Episode Cycle – Repeating actions in a period of time makes it easy for a company to divide the relationship into several clusters and get in touch with the customer easily.
- Customer Relationship Cycle – During a certain segment, customer and company experience different situations that can influence their relationship.²⁵

The Customer Lifetime Cycle (CLC) describes the changing customer needs while he is getting older. According to Trommsdorff the demographic change in our society is the reason why there is a change in purchasing power, too. Older people are wealthier than young ones. A study in 2004 proved that seniors have three times the purchasing power compared to younger consumers. The total amount in Germany in 2006 was estimated by GfK about 640 billion euro. This fact is important for the creation of a CLC. Seniors have a low household income; at the same time they have low debits, which cause their available income being comparatively high.²⁶

The following figure will demonstrate the different stages a consumer passes through during his life, starting as a student. This figure focuses on the period in life were people are part of the working population and ends with the stage were people retire.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Customer Life Cycle, according to Bruhn (2015), p. 62.

Customer Episode Cycle describes a situation, where service is needed in a frequent period and is often known previously. The causes are product-based or attached to a service, like going to a doctor. It can also be regulated by law, for example seeing the tax accountant for the annual return of tax. Other causes can be seasonal-based like buying cloth. Knowing these triggers, marketing instruments can be used additionally to control the relationship.²⁷

Customer Relationship Cycle specifies the relationship in a chronological sequence. This allows defining three main stages of relationship: Customer acquisition, customer retention, and customer win-back. Following a common relationship cycle, the intensity rises from acquisition to retention and drops during the win-back stage. Further characteristics to analyse the customer relationship cycle can be divided into customer- related and company-related. Customer-related characteristics are given by the customer’s intention concerning the relationship. Company-related characteristics affect the marketing strategy used by the company.²⁸

In the stage of acquisition, customers collect information concerning the company. Meanwhile the company uses communication strategies to catch consumers’ attention and to suggest quality in service and products. This stage ends by a purchase through which the consumer gains information about the service and the quality of the company.

The company gets information about the customer and is able to use those to create a profile. For a company this stage is expensive because the costs to gain new customers are superior.

The retention stage is the stabilizing stage. Now the company has the chance to raise the customer average sales by cross- and up-selling. Once the peak is reached, it is important to keep the customer at this level of returns. This can be done by offering further services or products, which will gain the company’s profit.

The last stage is the win-back stage. In this stage, the customer decides whether or not to leave the company and turn over to a competitor. This decision can be influenced by several aspects. Sometimes consumers need variety or a competitor has a better product. Dissatisfaction can also be a reason to leave. The only chance for the company to keep the customer in this stage is to improve quality and convince the customer to stay. This stage is also marked by high costs to win-back the customer.²⁹

2.3. Opportunities and risks

If CRM is done properly, the following opportunities are provided:

- Current information: A company gets better information concerning the customer needs and the conditions on the market by a tie relation. Hence there is a decrease in offering products or services that are not demanded.³⁰
- Cost reduction potentials: According to literature, generating new customer costs six times and winning back a leaving customer even ten times more than the care of a bound customer. Therefore a structured CRM can reduce the costs.³¹
- Bigger tolerance: Satisfied and loyal customers are willing to forgive mistakes or irregularities in quality and they are willing to pay a higher price when the satisfaction is rising, too. That has a positive effect on the company’s financial situation.³²

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¹ Haag (2010), p. 8-17.

² www.wirtschaftswoche.de

³ Bruhn (2015), p. 1.

⁴ Payne (2005), p. 28.

⁵ Bruhn (2015), p. 2.

⁶ Payne (2005), p. 28.

⁷ Bruhn (2015), p. 2.

⁸ Hippner, Hubrich, Wilde (2011), p. 18.

⁹ Meffert, Burmann, Kirchgeorg (2010), p. 860.

¹⁰ Töpfer (2008), p. 37.

¹¹ Meffert, Burmann, Kirchgeorg (2010), p. 60 f.

¹² Bruhn (2012), p. 95-97, 108.

¹³ Bruhn (2012), p. 106, 107.

¹⁴ Hippner, Hubrich, Wilde (2011), p. 38 f.

¹⁵ Homburg (2008), p.55.

¹⁶ Bruhn (2015), p. 86.

¹⁷ Töpfer (2008), p. 38.

¹⁸ Ibid., p. 200.

¹⁹ Töpfer (2008), p. 41.

²⁰ Bruhn (2015), p. 89 f.

²¹ Foscht, Swoboda, Schramm-Klein (2015), p. 241.

²² Bruhn (2015), p. 95.

²³ Töpfer (2008), p. 90.

²⁴ Ibid., p. 90-94.

²⁵ Bruhn (2015), p. 60.

²⁶ Trommsdorff (2009), p. 202.

²⁷ Bruhn (2015), p. 64.

²⁸ Ibid., p. 65-67.

²⁹ Bruhn (2015), p. 64-71.

³⁰ Dittrich (2000), p. 15.

³¹ Aßmann, Werg (2008), p. 10.

³² Trommsdorff, Teichert (2011), p.320.