The second part of this section of the course, dedicated to the numbers heritage management needs to know in order to grow, is dedicated to customer relationship management. Customer relationship management is an integrated system of strategies and also operational processes that are supported by a proper and suitable software in order to do what? In order to increase the loyalty, and of course the profitability of the firm. This is something that typically happens and is implemented in traditional profit companies. And what we think is very important is to also have a CRM approach in managing heritage, in managing the performing arts, and in managing cultural institutions. Why is this important? It is important because long relationships are the most profitable. Getting to know and finding new customers is very expensive, while if we already have a set of customers that has a relationship with us as a company, it is cheaper to develop and increase their relationship rather than starting research for new customers from scratch. Then, we know from what we learned in this course, that loyal customers tend to buy more, because they already trust our firm, they already trust our organization, so they are happy to buy more. Then there is another element, loyal customers are less expensive to serve. I mean, that getting to know and relating with them is a cheaper than serving new customers that enter into a relationship with the organization for the first time. Then we have another important element connected with customer relationship management which is retention. It is the capability of an organization to retain, to maintain a relationship for a long period; not only after the first purchase, but later on in the second, third, and further purchases and the relationship developed with the customer. After having understood what customer relationship management is, we can say that it mainly consists of three moments: The first one is the analytic CRM, getting to the information, getting to know the data; strategic customer relations management, so defining what the best activities are to implement in order to look for profitability and loyalty; and then, of course, the measurement of the results, ao analytic, strategic, and measurement. The first part that is very important above all in a context of heritage management is having, clear in mind, what the most important metrics are that are useful for a cultural organization, for a museum, for a theater to research and have in order to make analysis and strategy. We can measure, first of all, the strength of the relationship. How the relation is strong between visitor and the museum, between the audience and the theater, between the subscriber and the organization that leaves with the subscription of its member. Second, we have the length of the relationship that needs to be measured. How long the relation is likely to last. And third, the profit that this relation can generate. Let us start with the first one. So analyzing how to check and measure the strength of the relationship. In order to measure the strength of the relationship, there is an indicator, quite used in the traditional profit goals, which is the customer retention rate. The customer retention rate measures the capability of the organization or the company to retain, to be bound with the customer year after year. It's easy to calculate. Let's make an example, a theater that has a set of subscribers every single year. At the end of a year ,so 2015, we need to measure how many subscribers we have at the end of this year. And deduce from this number, the number of the subscriber that were established and the number of the people that subscribed during the very year, so the new subscriber of the year 2015, and divide this result for the number of the subscribers that we have at the end of the previous year. So we have an indicator which is the customer retention rate. Members at the end of the year minus the new member collected during the year, divided for the member of last year. This is the customer retention rate. It measures the capability of the company, the organization, the theater in this case, to retain and to maintain the relation. Connecting with the customer retention rate, then we have another rate that is easy to calculate is one minus the customer retention rate. And we have the churn rate, so what is the churn rate? That is something that Is more common and more known. It's the percentage of the rate of the customer, the visitors, the subscriber that abandoned their relations. So people that came Into contact with our organization and then after that, they left the organization. The second aspect that we need to measure is the length of the relation. The length of the relation is the customer life expectancy, and this measure using one divided by the churn rate. The last metric for an institution is important to consider is the customer lifetime value. So, we know the retention rate, we know the churn rate, we know the customer life expectancy, now we need to know for the remaining life of our customer, for the future life of our customer relating with our company, how this relation can create a profit for us. So the customer lifetime value is nothing else but the present value that is attributed to a customer for the future cash flow that he generates. And in order to calculate it, we need to consider the cash flow that the customer generates this year and the following year. Of course, divided for one plus the discount rate. This information regarding the customer lifetime value allow us to consider another element that is important for creating and maintaining and develop the relation with other customer. And this is very, very important also in the heritage management. We have a lot of new visitors in a Museum. We have many people that participated, too in the performing art in the theater. But the company, the organization needs to be able to retain, maintain, and exploit the relation that is generated in the moment of interaction with the costumer. So, we consider now the growth opportunity, the opportunity to grow. In order to understand, how can we developed and we can grow the opportunity that are generated through the relation with the customer? We can consider two approaches, or better than the two approach, we can consider two perspectives. The perspective of the customer base. So if you want to exploit our customer or try to find out new customers and the same time the so called business portfolio. So our product portfolio, our service portfolio and in the case of museums and theater, the experience portfolio that we have present and future. So something that we are already producing, already showing or something that we create for the future. If we consider these two perspectives, the customer base and the business portfolio, we can decided to penetrate our market if we use the customer base, so our customer, our visitor, and the product that we already present to them. So the present business portfolio. In this case, we usually talk about the upgrading, the upselling, the penetration of the market. On the other side, if we have the price and business portfolio, so the actual production in the way of our organization, then this needs to be sold and presented to new customer, we talk about market development. The third aspect is for the future business portfolio. I mean we want to create a new product for the visitors in the museum. We want to create a new season, a new proclamation, a new program for a theater. We can sell this offer to the present customer. So it's called a product development. But also we can sell this to the future customer and in this case there is a combination of actors playing the role and we talk about diversification. Well, we arrive at the end of this part dedicated to the metrics, measuring the strength of the relation, the length of the relation, and the profit generated by the relation. There is an important aspect that I am very positive in underlining which is the necessity of getting information, of getting data. Customer relation management can exist if we have a collection of data that we gather in the relation with the visitors. So it's important that the ticket offices taking information from the people that is buying the ticket of a museum, is buying the ticket for a performance. Collecting this data allows the company, the organization, to have a database that needs to be studied. And so data collection, data mining, so enter in research in the data, allowing therefore to profile the visitor, profile audience, profile the customer, so profiling. And then it is important to conclude, to stock those data warehousing in order to make a comparison between the data collect in this year with the one collected in the next years and understanding if there was an increase, decrease, better performance of the organization in the future. So data collection is at the basis of a proper and profitable customer relation management.
