How will you manage your customers via the Internet?
Managing Customer-Specific Relationships
Customer relationship management (CRM) combines a strategic business approach with technology. Managing customer relationships begins with a strategic awareness based on customer-focused themes.
Key customer-focused themes:
– matching the right problem with the right solution
– developing and test marketing the solution
– producing and providing it in a timely manner
– implementing a full-scale marketing and sales effort
– getting customer lock-on
– maintaining customer ownership.
As we have discussed in a previous Article, managing customer relationships through a networked enterprise helps you respond quicker to customer inquiries, increase efficiency through automation, gain a deeper knowledge of your customers, improve customer loyalty, and increase revenues through marketing or cross-selling opportunities.
It all starts with one simple premise: “How can you make it easier for your customer to do more business with you?” Maintaining the lifetime value of customers means creating a long-term servicing franchise.
Customer satisfaction leads to customer retention, which leads to recurring revenues. For example, Charles Schwab, the world’s largest discount brokerage service founded nearly thirty years ago, has over 8 million customers and maintains an 88 percent retention rate. So if Charles Schwab did nothing else, if they got no new customers, they would still have a profitable business, thirty years from now, servicing the 7 million customers they currently have locked-on.
Getting Customer “Lock-On”
On the average, U.S. corporations lose half their customers in five years, half their employees in four years, and half their investors in less than one year. But getting customers as part of an “installed base” means you have to have a group of customers who want your products as their dominant, or sole, choice on an on-going basis. They should have a good and sufficient reason—you solved a major problem for them before and they are sticking with you. Likewise, this lock-on becomes a significant barrier to entry for competitors.
As Philip Kotler and many other marketing experts point out, the economics of customer lock-on and ownership are quite simple: It lowers the cost of customer acquisition, and the marginal cost of transaction, the longer and stronger the customer relationship becomes. For example, the cost of marketing, advertising, and customer support for loyal customers is as much as 25 to 30 percent less in overhead than for first-time customers.
Loyal customers are better than your sales force at converting prospects into clients, because they are trusted to be objective and because prospects identify with them. Loyal customers provide excellent feedback. They are the first ones to spot a negative trend in your products, sales, or service and they are an excellent source of advice on how to run and how to improve your venture.
Customer Relationship Management
CRM is about managing the customer’s activity cycle, from customer acquisition and retention, to sales and servicing. Siebel is known as a leader in CRM applications. Just look at how their Web site describes their business: “The Company designs, develops, markets, and supports Siebel eBusiness Applications, a leading Web-based application software product family designed to meet the sales, marketing, and customer service information system requirements of even the largest multinational organizations.”
Peter Weedfald, vice president of strategic marketing and new media for Samsung Electronics America, Inc., oversees 4,000 dealers and channel partners in North America. He says that “CRM stands for customers really matter.”
Secrets to CRM Success:
First, remember that every contact point is valuable, and this includes phone calls, service people, follow-up mailings, Web site, products and packaging, partners, and e-mail marketing.
Second, realize that marketing and sales are deeply integrated. A salesperson’s goal is to close the sales cycle and get to a revenue event. Likewise with marketing, an ad or press release can work on closing too.
Third, experience your own CRM by calling your toll-free numbers, buying your own products, receiving your own newsletters, and getting on your mailing lists.
Fourth, use CRM as a form of research, collecting intelligence from competitors’ CRM programs.
Fifth secret is to know that CRM is choice not chance. Your customers will have access to more information than ever on products and services to help them make decisions that will lead them to your venture, so do not leave it up to chance.
When a sale is complete, a customer is left with not just a tangible product but also with feelings like elation, surprise, delight, satisfaction, frustration, confusion, disappointment, anger, resentment, and so on. It is important to know how your customers feel. It is also important to keep working them toward one thing: satisfaction to the point of referrals, renewals, and recurring revenues.
As mentioned in a previous Article, very early in the buying process Dell Computer becomes a value advisor, going beyond selling products and solutions. Dell helps customers understand and stay ahead of the fast-changing technology curve, which facilitates the decision-making process. Dell begins the first contact points delivering expert advice “with no strings attached.” This does much to demonstrate that Dell can be trustworthy not only with the advice regarding the current product, but as a point of reference for facilitating future technology purchases at Dell. In addition to providing advice on upgrades and new purchases, through their extended enterprise Dell monitors and tracks customer satisfaction, tames service problems, handles complaints and suggestions, surveys customers, and conducts online focus groups and new product surveys, always trolling for new product ideas.
New Product Development
Michael Dell found that managing customer relationships is a two-way street. He found that it is as important to listen to customers as it is to advise and counsel them. According to Dell, “If we had consulted our customers first about what they needed we could have saved ourselves a lot of time and aggravation. Involve your customers early in the developmental process. They are your most valuable focus group. Listen early and listen well.”
If you listen, you’ll get early insight to what customers are interested in and, better yet, where they are going in terms of needs and solutions. Hence this integrating of information, customer intelligence, and collaboration with lead users that we first discussed in a previous Article becomes even more important for extending the venture’s value into the future. Keeping your finger on the pulse of your best customers will become a requirement, as customer priorities will change so rapidly. So if you are not out there directing them, as Dell does, helping them discover what they need in the future, you are going to lose them to competitors through the gaps in your value chain.
This customer knowledge will help your venture predict what sorts of services and support offerings customers are likely to want or need, and to develop more effective strategies for meeting those needs before they are even articulated. Being networked can even prevent new product projects from getting launched.
For example, Arrow Electronics, based in Melville, New York, has a suite of digital tools connected to a real-time database that customers can search for information about electronic components. The database tracks product life cycles, parts availability, multiple sources of information, breadth of customer usage, lead times, and component cross-referencing. As a result, the company’s online network helps engineers avoid the problem of designing parts that become obsolete before the company gets to production.
Managing Strategic Network Specific
In his book, Direct from Dell, Michael Dell advises companies to “keep your friends close, and your suppliers closer.” But we know that in the old economy there were natural limits to the power a corporation could have. It was restricted to how many businesses, customers, or suppliers it could draw into its sphere of influence, because there were natural limits on how many could utilize the service at one time and how many could have access to the company’s assets in the value chain, as was true of store fronts, drive-through windows, or manufacturing lines.
There were always tremendous costs and risks when a new business venture created its own distribution channels, logistical network, manufacturing plant, and R&D function for every key market. Strategic alliances are important hedges against uncertainty. For example, Siebel Systems creates software products and coordinates a huge team of more than 750 consulting companies, technology providers, implementers, suppliers, and vendors in its value web. When taking their product to the global marketplace they reduced their risk by creating strategic networks. Tom Siebel once said, “We only have 8,000 people on our payroll, but more than 30,000 people work for us. The models for business success today are hermetically sealed firms but dynamically evolving networks of cooperating players.”
In a Thunderbird International Business Review article, Hans Hinterhuber and Andreas Hirsch state that a strategic network is not “coordinated coordination” between Web-blogs, message boards, and online chat groups—but can only exist between formally structured for-profit, legal, business enterprises that promote long-term strategic cooperation. Motives for and objectives to entering into such networks are quite clear. As mentioned above, the number-one reason is risk reduction. Such networks spread the risk of large projects between two or more companies and can facilitate faster entry into the marketplace, thus speeding return of cash flow on investment. These networks also create economies of scale, rationalization, and synergy. They reduce capital expenditures, reduce inventory in the value chain, and are particularly helpful to ventures transferring production and support activities to lower-cost locations around the world or supporting launches into new marketplaces around the world. Members of these networks can share technology, know-how, and information about marketplaces, like access to channels and changing customer preferences, which helps manage demand volatility. Finally, these networks as a whole can block competitors’ moves and potential new entrants.
The following are examples that help illustrate the benefits of strategic networks.
Michelin North America, Inc.
Based in Greenville, South Carolina, Michelin empowers their tire dealers and national fleet account customers with online information and services. They can use the site to look for inventory, order tires, check on orders, create and submit claims, check the status of an account, and obtain technical data. And Intel’s CEO Craig Barrett pushes his company toward a 100 percent electronic corporation, where suppliers can access their account information online to see internal demand forecasts, engineering changes, and orders and invoices. Its factory systems automatically communicate demand, inventory, and receipt information to suppliers, without an Intel buyer’s involvement. When Intel is developing new products, they work closely with suppliers, particularly those that build manufacturing equipment or provide direct materials such as silicon.
They established a proprietary network exclusively for NASDAQ-listed companies. It is continually updated and contains comprehensive market information to help companies manage relationships with analysts, market makers, and institutions. It also provides access to up-to-the-minute market commentary. Its community members can use NASDAQ online to see how their stock is trading, follow their competitors, and track the market’s activity at any given moment. NASDAQ online also provides key information on institutional ownership, research coverage, performance ratios, and more.
The Cisco Collaboration Center of Excellence (CCOE)
This network coordinates, delivers, and drives solutions across the company to enable virtual, Internet-based capabilities that increase productivity across geographical, cultural, and technical boundaries while reducing expenses. With only 30,000 employees, the network manages some 584,000 extranet relationships. The primary emphasis is on bundling new technologies that allow stakeholders to communicate and network into a “collaboration space.” The intent is to leverage the skills and knowledge of people who work across a variety of social, geographic, industry, and cultural boundaries.
Guy Abramo, chief strategy and information officer at Ingram Micro, based in Santa Ana, California, has been instrumental in transforming the $30 billion company from a technology distributor to a global Internet business and supply-chain management services firm. His network accesses more than 1,800 vendors, including Microsoft, HP, Compaq, and Cisco. When combined, these vendors stock some 280,000 products; each day Ingram Micro ships more than 90,000 orders, and every year it processes over 60 million electronic transactions globally. Ingram Micro’s strategic networks are segmented by customer needs and special interests. Their value-added resellers (VARs) segment contains retail stores like Best Buy and CompUSA. Their Partnership America network targets government and education, their VentureTech Network targets small and medium business ventures, and their National Service Network targets service professionals in 800 markets.